Joe Robertson owns Shelter Solutions, a small efficiently run building company with over 40 years of Homebuilding experience with a massive variety of projects. They started building ADUs in 1998 when the Portland Zoning code was modified to allow for ADUs. Since that time, we have built more high quality ADUs in the Portland Metro area than any other builder.

Kol:   Joe Robertson and I have known each other for about a decade or so. And I learned about Joe because he was, you know, pretty involved with some ADU related conversations with the SDC waiver, which we'll talk about in a little bit more detail later. But he's also just notably the, one of the more prolific builders in the U.S. and definitely the most, or the most prolific builder in Portland. So, and the most experienced builder in Portland in terms of ADU development he corrected my marketing literature, which said he'd been building an ADU for a decade he's been building an ADU for two decades, which is very impressive given that it is, we're not really a phenomena two decades ago, at least in, in Portland. So so thank you for that correction. And it just goes to show how much Joe brings to the table. So we'll be fielding a number of questions from you guys that are just kind of all over the map in terms of design and build questions at the end today. So, and [00:03:00] Joe can answer any of these things jointly. All right. So Joe, please introduce yourself a little bit for the audience.

Joe Robertson: Hi everybody.  I'm Joe Robertson, owner of shelter solutions been a builder residential construction for about 42 years and Portland for 29 years and building ADUs for about 22 years.

So I'm experienced in all different types of residential construction from custom homes to production, and then of course, ADUs and other accessory structures for other reasons. So now the ADUs are pretty much all we do.

Kol: How many ADUs have you built roughly in how many jurisdictions?

Joe Robertson: We have someone ask us this question about well a month or two ago.

And so we went back and counted. So we're finishing one next week and it'll be number one sixty nine, a hundred sixty nine ADUs . And primarily building the City of Portland but built some in [00:04:00] Clackamas county, Washington County, Tigard, and Tualitin,  but 98% in City of Portland.

Kol: Yeah. Yeah. And and there's some, you know, I've mentioned that there's some really specific reasons why that's been the case that most people who are building ADUs are primarily building in Portland, but we're going to see that change probably with House Bill 2001, we'll see more market adoption in neighboring jurisdictions.

But it's hard to find builders who have built in other jurisdictions around Portland at this point.

Joe Robertson: Yeah. We're open to it, but we, we also need to gauge it by travel time and we  don't want to get further than about 30 minutes away in between projects and have to spend too much time on the road with the traffic situation here in Portland.

 

Kol: I know when I think of the work that I've seen, that you do, I've seen detached new construction and I've seen bump out addition ADUs.  Do you also do internal ADUs [00:05:00] or other, you know, other forms of ADUs?

Joe Robertson: Yeah. Yeah, we have we've completed a few basement conversions to ADUs and several attached ADUs, like you mentioned. The, you don't see the basement conversion so much, cause they're kind of harder to take pictures of.

So I haven't posted any of those. Well, I think I do have one on my website, but we prefer to build detached standalone new construction  but also garage conversions. We do quite a bit of those and we like, we like garage conversions, but we're not opposed to basement conversions, but there's there's just a select few that are set up to where it can be done properly. So it's kind of limited.

Kol: So prior to your decades of ADU construction experience, you did production home building. Can you talk about some of the lessons that you have brought to bear in  the ADU development, ADU  building space that came from your previous [00:06:00] experiences?

Joe Robertson: Yeah, so years ago I was a, for many years in a custom home construction and in Ashland, North Carolina, and I noticed the other day you had somebody on your your listeners from Asheville, North Carolina.

And I built primarily a timber frame homes, exposed, exposed, being construction and mortise and tenon, and post and beam construction but all types of residential custom home construction, each one designed individually. And then when I moved to Portland 29 years ago, I started working for a small builder developer that developed his own subdivisions.

And we grew quite substantially over the 10 or 12 years that I worked for him. And Joel, you're one of the major builders in the area that wasn't a national builder and production. Hall's mostly mid price production homes. And that's where I kind of honed organizational techniques and scheduling and estimating and so forth.

And so I've [00:07:00] applied both aspects to, to building ADUs. I, I, I like to say, ADUs are  like building a little custom home in somebody's backyard which it is to me, but we also use a lot of the principles that I use in production housing for organization estimating, scheduling, and so forth.

Kol: Yeah. And I'll be prodding you about that process. Actually, let's just go into that. Can you tell us a little bit about the design build process that you use? And tips you'd have for other builders who are trying to adjust into this space.

Joe Robertson: Yeah. So we, I started this system quite a few years ago.

Well, actually when I started building ADUs, so  we'll go out and do a site analysis with the customer and just look it over, have kind of an informal meeting with the customer and give them our opinion, answer their questions. Then the next step after that with us is we do what we call a feasibility study.

And in that we start with the [00:08:00] designs, whereas the design build part, and we, we also welcome projects from architects or customers that already had an architect and we've done numerous ones of those, but for the design build aspect we do a feasibility study and we start with the site draw site plan, determine the footprint and then work the floor plan off of that, and then develop it into exterior elevations.

And there's a lot of back and forth with the customer during that stage, obviously, till we get to a point to where I say, are we close enough to where I can bid this out to all my subcontractors and suppliers, you can still move a window or change your cabinet plan and I do that a bit. I have  a system where I can send a bid package out plans and specs and do a real detailed cost estimate.

And also during that time, we meet with the city over the counter in an informal review mostly with planning sometimes with structural and let them see what we're proposing to do and see if there's any issues so that we had them off before we actually apply for a building permit. [00:09:00] And we present that to the customer in a booklet form and also electronically.

We charge a fee for that and when they sign up. So we try to answer all the major questions in that. And we also in designing try to design to meet their budget. And then the next step is up to them when they sign a building contract, we credit that fee against the price that we'd given them for the for the feasibility study.

Kol: I think your, your feasibility study process is a good hook for getting new leads. For getting clients in your funnel, so to speak. Can you talk a little bit more about that? You know, roughly how much we're talking.  How in depth are these feasibility studies? As a point of reference, I do consultations for homeowners who are at the very beginning of the process before they've talked to a builder designer, I charge $200. No, you know, I don't do referrals. I just kind of give my own opinion of what their situation calls [00:10:00] for, what kind of builder they should look for, what should, and it's not really a feasibility study, but it's more or less my, my professional opinion of what they should anticipate the process looking like, but you're doing a much more in depth feasibility study.

So let's, can you. Pull that out for us a little bit.

Joe Robertson: So my first site, I call it analysis. First consultation is very much like your. It's  an informational thing, where you are answering questions basically, and sharing what's required by the code and so forth. And then the step further into the feasibility study, it gets pretty detailed and we spend a lot of time with the customer.

And I don't mind saying it's on it's on my website. We charge $1,950 to do a feasibility study, which if a customer doesn't go through the building contract we've if I counted everything out, we've lost money, but. It's to cover us, hopefully part of the time, if it doesn't go through, but it's also, you know, to get a little commitment out of [00:11:00] the customer that we're going to do all this work for you.

And, and if you decide you want us to build your ADU we'll, we'll give you that money back. It's built into the cost of, of the project. So it's worked out really well. And the conversion rate to that is, is pretty high. It varies a lot, but I'd say in the 70, 75% range converts to an actual build,

Kol: The remaining 25%, you suspect they're going to other builders or they just not going forward with their ADU.

Joe Robertson: I don't think I try to check up and I don't think I've lost too many to other builders. Like over the years, maybe. Two or three or four. Sometimes financing is the big holdup. Or  they just changed their mind or it's, it's a little too overwhelming, it's a big deal. So, and it's a long process. So some people just aren't totally cut out for it once they find out everything about it.

But that's one of the beauties of the feasibility study. They definitely get their [00:12:00] money's worth out of it.

Kol:  We should clarify that  when I've seen your feasibility studies they actually include preliminary drawings of the ADU  that you're talking about building.

Joe Robertson: Correct. So we do floor plans. They're they're detail. I mean, everything's on the floor plans, except for all of the notes and stuff that you need to put on for permits and exterior elevations. And we'll usually do we do it in Revvit. So we usually do a couple of 3d renderings either outside or inside or both. So when we go to final plans, we're just adding engineering and all the, the details that the city is going to want to see on the application plans and any changes the customer makes along the way.

Kelcy: You're saying the word rendering reminded me that can you tell us where you're sitting right now? Where we, where we think you're sitting?

Joe Robertson: Oh, well this is one of my ADUs I'm sitting on the floor. No, I'm, I'm actually in my office with a backdrop of a picture of one that we built.

Kol: We're going to go into [00:13:00] costs here. Joe,  talk about cost and I can put myself on mute.

Joe Robertson: I hope my my dog doesn't hear. Cause it'll start to o. As far as costs, I noticed, I heard you say that we're one of the least costly ADU builders and I, I don't, I can't say that for sure.

And we don't want to be the cheapest, but we want to be as competitive as possible. And I think we were told that we are .I don't think I can say I've lost a whole lot because of costs I've lost. Maybe some that was more than the budget that the customer could stand, but not because I was competing against somebody else.

But we'd like to compete against other builders on a cost standpoint, because I think. We're not the cheapest, but I think we come out good. And I think we give the customer good value for the dollars they spend. But we are competitive for maybe three, three different things. One is, is volume because of the systems that we we have in place and our organizational systems [00:14:00] and skills we can build more ADUs.

We, we one year we built 20. I can't say that was comfortable, but it turned out well, all of the customers were happy with their product and we built them on time and budget. But 15 to 17 in that range, depending on size and complexity, is a more comfortable volume for us. But when you build in that volume, you can keep your cost, I think, a little bit more competitive and then 2,  Our subcontractors and suppliers have been with me. Lots of them have been with me 20 years or more. Many of them 10 years or more. I think the newest one we have is three years . And so it, it develops a loyalty and it helps to control costs when you're not jumping around from subcontractor to subcontractor, especially in the market that we had before this little, a big crisis hit us.

And then, like I mentioned before in the feasibility study we designed, we were very upfront with the customer to get a budget up front. And then we [00:15:00] design to that budget when we're doing a design build. And we were pretty successful with that.

Kol: So let's talk a little bit about your business. How many, like how many full-time staff are there and what portions of the construction do you sub out and what portions do you do in house? 

Joe Robertson: We're a small company and happy to be that way, especially when things turn down. It's myself, my wife does the bookkeeping here in the office. I have a project manager I believe you've met.

And then he has an assistant that he's basically training to to do more and more of his job. And I'm training my project manager to do more and more of my jobs. So we're, we're kind of building within at this point. And I mentioned near future. I don't want to grow any more than we are. I'm very happy with the size that we are and I don't really want to do anymore volume that I just explained -that works quite well for us. And we keep [00:16:00] it all the customers happy that way. So we're a pretty tight knit company. Our designer works for us on a contract basis, so per job basis, but he like all my other subcontractors. That's done all my work for many, many years. So it's more than just a, "Hey, go to this guy and get a plan drawn."

We've got a real good relationship. And then I also have a designer,  like a selections coordinator, who is an independent contractor. She's also a designer for Nike who works with our customers. When they go in for permits, she starts working with them and helps them kind of hold their hand and help assist them all the way through making all their finished selections.

So that's the size of our business.

Kol: So what are some elements of ADU construction that make it more  challenging than conventional single family home building?

Joe Robertson: So I've said this a lot -that building an ADU, like I said earlier, it's like building a custom home in [00:17:00] somebody's backyard- is more difficult to me - and I've got experience in building hundreds and hundreds of houses.

And building an ADU is more difficult than going out and building a 2,500 square foot  house on a vacant lot, by far. As far as challenges, the access  is the obvious one. And we built some that I look back and I can't, I can't even see how we did it, but where there's five feet between the house and the property line.

And we got everything through there, the concrete and the lumber and all the equipment and so forth, the grading. So access is always a consideration. We love, love, corner, lots, or alley, lots too love those. And then utilities, that's one of the first things when I go out on one of those site analysis to meet a customer, it's not fun or sexy to them, but the first thing I'm looking for is the sewer stack and where's the sewer and how to connect up the utilities and the electricity and the water. How many fixtures do they have in their house and so forth because the utilities [00:18:00] are, are, and particularly the sewer is, is one of the biggest challenges we have.

We gotta really gotta be creative sometimes to get that connected up. And then you're just, we're in urban neighborhoods. So parking is limited as far as getting deliveries and subcontractors have to park close to, to get the equipment out and load it into the job and so forth. That's always a challenge and... almost always a challenge... and neighbors not, that's not really a challenge, but it's something we could go out of our way to introduce ourselves to the neighbors.

Explain what we're doing to hopefully set their expectations and to take the fear out out of, away from them and have them contact us anytime they, they feel the need to. So that's something you don't normally do when you're building in a, in a subdivision somewhere. Those are a few of them. There's more.

Kol: Now last week we had on Ezra Hammer with Portland Home Builders Association, and I asked him about what [00:19:00] type of advocacy builders could do.

And I, I know that you and I have both worked on some system development charge advocacy and you actually were involved I believe with 2010 SDC waiver before I was. So can you talk about your role in political advocacy for lack of a better term for ADUs over time? 

Joe Robertson: Yeah. I've been involved with the home builders for, for many, many years on different levels.

And when I was building ADUs probably know the year better than I do, but I think, I think back around 2009 head of head planner at the time who has since retired contacted me and, and I know him from just regular residential construction for years, and he knew I was building ADUs and asked me if I would help support them.

The planning department was going to go before the city council and ask for waivers on SDCs. This was during the recession. So they were trying to promote building, which was nice of them. And also [00:20:00] trying to promote ADUs, and so I did, I worked, I worked with him first and the preliminary stuff. You'd get a little presentation and have some other people there from the planning department.

I was the only builder at the time who had built more than one ADU. So I, I justified then they did waive the SDCs and that's where the whole thing got started. And then since that time, as you know, I've, I think has been three more times, I've testified to the city, every time it cause they, they waived them for three years and then another three years and another two years and so forth.

And so I've, and the last time, last two times, I think I've worked with you lobbying and, and testifying there. I also worked on a committee that worked with the planning department on access revising the code for accessory structures which includes accessory dwellings, but other things like garages and other detached buildings.

So I've had quite a bit of experience on that end of it over the years.

[00:21:00] Kol: Can you tell us about, I mean, you said you were building ADUs prior to the 2010 SDC waiver, which is when they kind of took off. Can you talk about how the 2010,  SDC waiver impacted your business directly?

Joe Robertson: Yeah, it was kind of like the perfect storm.

And I, at that point, I even had a customer come in and testify to, to the city council at that time and tell what a big difference that, that it would have made for them. But yeah, it was like the perfect storm in that they did the waiver more and more people learn what ADUs were. I used to have to explain them to everybody that I talked to you and more and more people learned what they were love, the concept.

And then I was really shocked by how many people learned of this waiver as fast as they learned it. And so it was a real shot in the arm. And then we started coming out of the recession. So it was like kind of a perfect storm, everything coming to a peak with a demand for building ADUs. But it was [00:22:00] definitely spurred by the SDC waivers.

Kol: And I want to tie that into what we're going through these days. So let's talk about the impact of COVID. Could you talk about whether you've seen an increase or decrease in new inquiries since COVID?

Joe Robertson: Yeah, it's weird. It's a surprise, you know, what's up is down and down is up and it's, nobody knows what's going on, but it's it's been crazy.

So last fall we were three years straight. We were everything we could handle that keep, keep going with demand. And then last, late summer, early fall, it just kind of started dying down. And then I've seen your report since then and seeing it was not just us, it was industry-wide and, and ADU industry-wide.

But it really died down in fall and winter. And usually our, our interests level and leads stay pretty consistent throughout the [00:23:00] year. There's not a whole lot of peaks and valleys, excuse me. So I was concerned and then, and so we stepped up a little bit on our marketing and then in March late February, early March, things started picking up up significantly and then the COVID crisis now.

And, oh God, that's just going to pull the rug out from under us. Well, it hasn't, it's, it's been. surprisingly, and I'm glad, we've had more inquiries since, since the shelter in place than we had before. And it kind of makes sense and that people have more time on their hands. They're at home. They ...building an ADU may have been on the back of their mind, and now they have time to look --more time to look into it.

I don't know, but since  shelter in place, we've signed four feasibility studies and two contracts. So it's as good as the good times, the best of times, just in this little short period of [00:24:00] time. So we'll see who knows in the future, all bets are

Kol: Well, that doesn't help me with my next question, which was what you hypothesize the next two years will look like for the ADU market. Let's just assume worst case scenario COVID is still in effect for. You know, a year or so, and we go into a recession. What do you hypothesize this would, how do you think this would impact the ADU market?

Joe Robertson: I think well, first of all, nobody knows, but here's what I think of that. I think the ADU market will stay healthier than other aspects of residential construction remodeling, probably not because you're in somebody's house. If this COVID crisis is still right up front people, aren't going to want you in their houses, obviously. Building an ADU especially a detached ADU, we're [00:25:00] out away from their  house, a reasonable distance. And because of the size of an ADU, I built, like you said, a reduction housing for years, and we would just run people through there, like crazy to, to build them in 90 days and so forth.

We don't have that tight of a schedule on ADUs. Although we do schedule them really efficiently, but because of the size, you can only put one subcontractor at a time in there. So you can, social distance, or working distance pretty easily with a, with an ADU, as far as the marketing part of it.

I just don't know. If interest rates stay low, that'll help a lot. But if people are worried about their jobs or they're worried about the stock market, that's going to affect all of us. So it's, it's. Really a guess, but I think  ADU construction will fare better than most other aspects of construction.

Kol: Yeah, I think that is true. And I think you, your experience in 2010 [00:26:00] and my experience with this market in general indicates that ADUs  will fare, just fine, relative to other things in the face of a recession. So that's all, that's the only data point we have to go on. Really. So any significant changes to your business model in the last few years that you'd like to share?

Joe Robertson: Yeah. As far as the way we do things, it's pretty, pretty much the same, but we'd done that feasibility study program for 20 years. But we use a cloud-based construction management software now it's taken, it's a big, big program. It's taken us. Almost four years to get really up to speed, to all, to effectively use all the modules of it, but it's wonderful.

It it handles all aspects of our business from new leads for feasibility study process, all the documents scheduling owner selections, change orders, bidding estimating subcontractor control and all the communications between [00:27:00] subcontractors and us and us and the customer are all in that job for the customer.

And the customer has their own partner portal, excuse me, where they can pull it up on their phone or their tablet or their desktop. And see their schedule their plans, any documents and any of the emails back and forth, or our communications back and forth. And it's just been fantastic. Art. I mean, you used to drive around with a whole pile of blueprints in the back seat and a  box of files and everything's in our phone right now.

And it's just been one of those things that now that we're used to using, it's been a big learning curve, but now that we're used to using it, it's like, how did we ever do without it kind of a thing? What customers love it.

Kol: What's the software called ?

Joe Robertson:  Builder Trend. There's several of them out there. But we really, we shopped and looked into it and we just really liked this one.

Kol: One of the conversations, the recurring threads, that I've been having with several of the guests is about predesigned ADUs. And you [00:28:00] have some direct personal experience with this now, really interested for your take on these questions in a number of different ways. But let me just hand it over to you. Tell us about your experience with predesigned ADUs. How is that doing? What's the response been? What have, you know... and I'll ask you more about that in a second. 

Joe Robertson: Okay. So yeah, so I mentioned working with the planning department and when they revise the code for accessory buildings and includes accessory dwelling units part of the changes where they allow we have in Portland generally speaking side yard and rear yard setback of five feet.

And so that's where you have to place an ADU that the closest you can place it to to a property line, but they one of the amendments to the code was they will allow small structures, one level that are no longer than 24 feet in either direction, and one level to be closer to the property line.

Technically you can build it  right up to the property line, but we'd never recommend that. But but-- three feet, [00:29:00] two feet-- makes a big difference on a 5,000 square foot lot. So, and they, they relaxed, if that's the right word, the restrictions on the aesthetics of it, how that has to look, they, they made a little prescription that if you follow this prescription, so that meant you could design a building that a little ADU that could fit on anybody's or that could work.

On theoretically on anybody's lot throughout the city, that's encompassed in that code. So we, we came up with three or four of them, a one levels and developed pricing for them and put them on our, our website. And it's been pretty successful. They've all been modified somewhat because you have to, to make them work on the site with flipping them or window locations and things like that.

But they're basically the same plan built, built. None of them look identical, which is good. But they've been pretty successful. I think we've, we're up to seven of them now that we've built. So now we've just come out with a two-story model that does [00:30:00] have to be set back in five feet, but it meets the criteria.

So it could be built on other areas throughout the city. And we're gonna do a little smaller two-story one coming up.

Kol: All right. So, so let's, let's give a little bit of insight about. Well, first of all, what's the value proposition to a homeowner for a pre designed unit? And then what are some considerations that new builders to this space should consider if their business model is contingent upon a predesigned ADU?

Joe Robertson: Hmm. Okay. Well, if you, if you look at ours on our website, it says there are no changes are allowed. Well, that's, that's in a perfect world and we can't really do that.  You have to be flexible to make it work for the individual on their site. So we do changes but [00:31:00] what the advantage is- is the price has predetermined. You know what it is right up front. We, with that price, we show them what's included and we have allowances for like quartz countertops, lVT flooring, a plumbing fixture package. And then we say, this is, what's included in this price for this ADU. You don't have to go with that, but this is what's allowed for.

And a lot of people will stick with it. Other people want to just pick new stuff, but they know for that price, with these materials that they can. So it takes a lot of the uncertainty out of it. I would like to say that it goes through the permit process faster and it should but I can do a whole, whole hour long on the permit process, so I won't go there, but it does go through quicker, but not as efficiently as it should.

And maybe that'll change one of these days. I don't know, but that was the intention. Was that okay, you guys have reviewed this over and over [00:32:00] again. But so far they keep coming up with new stuff for us to deal with, but that was the intention to begin with is that we go through the permit process a lot faster too.,

Kol: And advice for other builders in that particular regard?

Joe Robertson: Just to be, yeah, it's a fine line to try to be predesign and sell up package if you will, and being flexible. You pretty much have to mix the two together. I see a lot of pre built ADUs, which I think is a great thing to market, but you're really limited on where those can go for a variety of reasons. So I wouldn't make it just a cookie cutter thing. I don't like myself to build two  of the same thing.

I liked the fact that every one of ours looks different, but I think maintaining some standards that gives the customer certainty on [00:33:00] price and design and combining it with a little bit of flexibility to allow them to tweak it to their, their liking and what works on their sites, the key to make it work.

 

Kelcy: I love this one from Kevin. What are some of the mistakes you've made that you've learned from the most?

Joe Robertson: Oh boy lots over time. And that's true too. Just construction in general.

One of the big things with building ADUs of people's backyards are I mentioned the utility connections being a challenge, but also when you're connecting-this maybe boring to some, but when you're connecting sewers and waterlines to existing basements, what you create, but when you fill it back up is a weak spot in the soil to where a groundwater will go to and run down the path of least resistance, which is the pipe and direct it right to the customer's basement, where you're [00:34:00] going into to tie into the sewer.

So we've learned all kinds of new techniques to stop that water and to waterproof the basement. So we don't get a call on a Sunday night with somebody having water in their basement that we have supposedly caused. So that's, that's one big one that, that did wake me up in the middle of the night.

Kelcy: Great. Thank you. Does the feasibility study include a survey per test or soil test?

Joe Robertson: We, we do a, a perk test ourselves when we are going to use a stormwater system like a dry, well we'll just dig in and do the perk test ourselves, which is a requirement of the city. When you apply for the building permit, we don't do it in the feasibility study.

I know, excuse me, from experience that properties on the east side of the river here in Portland, drain pretty well and will accept dry wells and properties on the west side of the river won't. And so [00:35:00] there's things like that, that we know whether to do it or not to do it. We get the survey done. The survey is required almost in every case.

While it's going through the permit process, if we're reasonably sure where the property lines are within, say a foot, which you usually are in the city, lots but it is required that you have a survey and, and build that into the estimate and soils only if you're on a, what the city considers a sloping lot.

Do you have to have a geo tech survey done? We have one right now that had enough slope to where we had to have a geo-tech and then he comes out. Once we dug our footings before report concrete and inspected and write up, write a report, but not very often.

 

Kelcy: Speaking of the utility, can you say, what percentage of ADUs you hook up to the existing property versus directly to the city?

Joe Robertson: Almost always the sewers hooked up to the existing property. We've had a few that were like, went from- it had a front edge on two streets to where [00:36:00] we could tap the sewer separately for the ADU, but that's really pretty unusual. So you usually share the sewer with the water. That depends on how many baths are in the existing house and how many you're building in the, in the ADU.

Whether you can share the water with the house, you can always share it, excuse me with the house, but you have to upgrade the meter so big that it kinda makes sense sometimes just to put a separate meter in for the ADU. But if you can share it, you're much better off from a cost standpoint. But I'd say maybe 70% of them we share directly with the house.

music: Okay. Thank you.

Kelcy: Do you know what  percentage of the ADUs you built are going to be given and  inhabited by family members and friends versus those are going to be directed rented out for a long term rental or short term rental?

Joe Robertson: Yeah, that's a great question. And when I first started this way back, I thought, oh, rental property, everybody's going to [00:37:00] want to investment and have rental property. It makes so much sense. And it does, but almost half of them aren't strictly rental. We do a lot of houses for aging parents where the aging parent actually pays for the ADU on their adult children's property.

They live in it for. However long. And I love it because it's a, win-win win for everybody. The adult children get all the value increase on their property in a future rental. And I think that whole aging in place thing is growing and growing. And I think it's going to become more of a factor, but that's, that's my favorite use for ADUs, but all kinds of other uses and the beauty of an ADU is it can change on a dime.

You could change the use of it from year to year. You can't easily in  Portland change from short-term rental, to  long-term rental, but you can go long-term rental to studio, to office, to grandmother's staying in it, to a kid getting out of [00:38:00] college and in-between careers or whatever. So there's a lot of flexibility there, but it's not strictly rentals. I would say 60 to 70% maybe rentals and the others are family and other uses.

Kol: Let me jump in with a little bit of commentary on this. So in the, there was a couple surveys that have been conducted in the city of permit data ADUs. And, and from those surveys, we know that there's really just two main motivations of why people build ADUs is that's passive rental income potential, and multi-generational household flexibility.

It's oftentimes like Joe is articulating a combination of those two things. It's sometimes like I have a parent who's going to be moving to down eventually, but I want a I want to have it as a rental in the interim or, or, you know, some kind of combination like that. So, but it's usually those two motivations coupled together.

 

Kelcy: This one, how are most of your customers financing their ADUs and for those that are [00:39:00] financing, can you offer any insight on what has flowed the best without hiccups?

Joe Robertson: Yeah. And I think Kol can probably speak to this better than me too, but from my experience if it's, if it's for a elderly parent, then that's probably cash because they probably sold their big house that they've lived in forever and they have a bundle of cash that they're sitting on and, and this doesn't use it all up and they can still have a house paid for essentially.

And money left over for the average individual. That's going to rent it out or for other purposes. If they have it, the home equity loan is by far the best way to go least restrictive. They control the money. But if they can't, if they don't have the equity, then the next step would be an actual construction loan, our refinance of the whole property.

The construction loan part works just like a builder works with the construction loan where. They borrow the money just to build it. And a bank comes out and makes inspections and then releases money to the builder on a monthly basis. And that's okay. [00:40:00] It's just a lot of paperwork and red tape and they put the customer through a lot more of a ringer than, than any other types.

So I'm sure you've got more on that Kol.

Well, I, I I've actually liked to die to go into that last topic a little bit without calling out any particular banks. I, my impression is that renovation loans, construction loans are great that they're there, but that they're a pain in the butt. And I don't know that there's anything that can be done about that.

But I usually put it out there as like the, you know, if you can do a, HELOC or a cash out refi, go with that. But I'm really glad that banks are doing renovation loans, construction loans. Can you talk a little bit about some of the. Like, would you turn away a job because it was using that kind of construction loan financing, and it was that much of a hassle or like, tell us a little bit more about your experience as a builder with that?

Honestly I felt like it, but I was already too far into it to turn around [00:41:00] and I would have left the customer, holding the bag, so to speak because it's not so bad for me. Once it's set, then I have to go off of their draw schedule and fill out their forms and they check me out financially and all that and check the CCB and all that, which is fine.

I've got those forms already prefilled out to send in when they ask for them. But what they put the customer through. We had one that was attached ADU in Southwest Portland and these people were financially sound, but I bet it took six months for them to process that loan. And they just kept asking for more and more and more, and the people were just frantic over it.

And I wouldn't have ditched them at that point, but I felt like was just get out of this thing, but it worked out in the end and they're glad they did it now, but it was painful. And I think that's going to get more competitive and I'd like to think that it would get more [00:42:00] streamlined. It's way, way too cumbersome. It, it just doesn't need to be that way.

Kol: So, so from the homeowners  vantage, it's definitely, you're validating that it is a pain in the butt. And that's every, every time I've talked to somebody who's gone through it, it's a pain in the butt. And from a builder's perspective, you think it's worked okay, but you've gotten paid after each phase of construction, which is not typical. Is that correct?

Joe Robertson: Yeah, we, we, we have a regular draw schedule in our contract that is X percentage at a real defined stage of completion, like 20% when the foundation's in and all the utilities are hooked up and 25%, when it's framed up to reef, sheathing and stuff like that, we have to find out all the customer can understand it. It's fair. But with. With a construction loan through a bank, they've got that, you've got to convert to their forms and they have to check their forms off in a certain way. And it's just more cumbersome and it slows the process down a little bit, but I [00:43:00] can live with that if they would process the loans better for the customers.

Kol: Yeah. And I, I just want to be clear that while I think it's this form of financing I think is just objectively, has been historically a pain in the butt. I still am so thankful that it's there. I think it's a great mechanism and I don't necessarily know what banks could do differently. I just know that that's what I've heard from people about.

Joe Robertson: Yeah, unfortunately that hasn't changed much so far.

 

Kelcy: What other costs can a homeowner expect to pay, even with the turnkey price of the predesign unit, such as site work, utility hookups, permits.

Joe Robertson: Good question. So when I did develop those pre designed ones and did a cost estimate on them, I went back through historical data as far as costs, and I figured an average site development costs for grading utility connections and so forth backfilling, anything to [00:44:00] do with the site.

It's, the rest is pretty easy to estimate, so I just average it too. So in that cost is average site work for us. Average 5,000 square foot, lot of a house in Portland with reasonably good access. Access can cost a lot more if you have to do special gymnastics to get in the backyard. So so that will fit most situations in Portland.

So as far as additional costs, if you're over and above that, of course the water line. If you have two and a half baths in the house and you want to build an ADU, then you're looking at a $7,000 meter upgrade or a new meter costs. So that's not in there, but most older Portland homes don't have two and a half baths.

So then we are turnkey. We typically include what we have to put in. As far as appliances we put in a dishwasher, if they want it oven [00:45:00] freestanding range, oven, and a hood or micro hood above that. We don't typically, and they're not included in the predesigned cost, the washer and dryer or the refrigerator.

Cause those go in after we're done and they're not required for any inspections. So to be move-in ready on the predesign ones that we have, you'd have to add the refrigerator washer, dryer, and any window coverings blinds that you're going to put on the windows. Then it's a hundred percent ready to move into.

Kelcy: All right. Thank you. I know you kind of talked about your side of the business in that you're still seeing contracts being signed. You've signed a couple of contracts. I'm just curious about the supply chain or labor. How has that been affected? And do you think that that is going to continue? How does that look?

Joe Robertson: Boy, this is just such a new and different situation. What I don't hope doesn't happen is what happened after the last recession to where there was so much demand and the subcontractors [00:46:00] and suppliers were had way more business than they could handle and, and were understaffed and couldn't get help.

I hope this is more of a gradual recovery, so to speak to where we don't have it. Cause we had awful lot of. Pretty drastic price increases during that period of time too. I couldn't keep up with it. When people would ask me, what do you think this is going to cost? I really hesitated because it changed so fast.

And if I set a number out, I'd be the bad guy a month later when it when the cost change. So I hope that doesn't happen. I hope it's a gradual thing. And I think it, maybe it will be a gradual thing by the way. The talk is about gradually opening things up as we go. So but hopefully we won't see the kind of price increases that we did before after the recession.