Table of Contents - Urban Town House Model with Scott Choppin
Dave Debeau [00:00:09] Welcome, everyone, to another episode of the Property Profits Real Estate podcast today, zooming in from beautiful Long Beach, California, Scott Chopan. Scott, how are you doing today?
Scott Choppin [00:00:19] I'm doing good. Great to be here. Thank you for the invite.
Dave Debeau [00:00:22] My pleasure. So Scott is a an experienced real estate entrepreneur who is doing something kind of different, which I'm very curious to find out more about, and that is that he and his company have created something kind of new that they call the urban townhouse urban townhouse. So, Scott, let's just start with that. What the heck is an urban townhouse? What does this even mean?
Scott Choppin [00:00:46] Yeah, now I appreciate the question. Right. Nothing like good, good definitions when you start having a conversation. So urban townhouse is a style of workforce housing and then you go, what's workforce housing? So for US, workforce housing is building a new construction rental housing product for middle income families. And we also have middle income roommates like during the pandemic. Roommate situations are actually a high growth area for us, but the intention was to serve a part of the marketplace that wasn't being served. So if you think about your classic real estate marketplace related to rental housing, on one end of the spectrum, you have what I call true affordable housing that's government subsidized, maybe social housing, public housing, people might call it. On the other end of the spectrum, you have true market rate, maybe luxury incomes, really no object. And then you have this this big middle section where it's people that are working class, blue collar families, roommates, and that they all have the need to try to rent or buy in this case. But rent is what we do, housing that makes sense for their income categories. Right. We all read the stories of people need to make fifty four dollars an hour on average salary to for the average unit in whatever city that they live in. And so what's special about these families are these roommate groups as they practice a what we call economic sharing. So in other words, anybody who's ever lived in a roommate situation would know what this is like intuitively. Like people do this naturally where they'll come together with other people to share housing or utilities or whatever other cost. Families do this, roommates do this. And so each urban townhouse is a an answer to at least part of that marketplace. And then functionally, what makes it different? Like, why does it serve that marketplace? So we build a five bedroom, four bath, three storey townhouse rental unit. So the way we describe it, it's designed and built to rent, but it lives like a house. So the townhouse allows the family to live above and below. Right. You don't have another family above you and below you like you would in classic STAC flat apartments. We have two car garage with laundry rooms and then we have these five bedroom, four bathroom units. And so it basically allows families that live multigenerational or in big family groups or roommates to come together in this single space and then start to practice this economic sharing lifestyle. All right. Very cool. So I'm hearing catch phrases here, but let's boil it right down. What who are your typical 10 roommates? Unmarried, multigenerational. Yeah, break it down for a dummy like me, what does that actually look like? So originally, the entirety of the program was intended to serve multigenerational families. So the definition of that is is two or more related generations of a family living together. So you think mom and dad, kids, maybe adult children and then older in-laws, grandparents or older in-laws and and they're all living together in a single household. So a very typical example of that, in my experience, would be a lot of Latino households that a lot of East Indian households are going to have multiple generations living within. And in fact, classically around the world, they've that's the normal living environment. So in Asia, in India, you know, in the Latin American countries, these family groups would never think about, like grandma, grandpa living separate. Like I mean, there's some functional advantages. There's money advantages. But social care at the idea of, you know, growing old with your families, really the separation, the nuclear family, at least the way we call it in the US. I mean, that's an anomaly. And even if you go back historically in places like the United States, they used to live multigenerational. I think it's starting to happen again because of those, right? That's right. Ever. We're at the highest level of multigenerational living that we have been in like one hundred and sixty years. I saw a stat that basically we've transitioned. It was dropping, dropping, dropping. Now we hit the bottom and now we're ticking back up on the graph for families that live that way.
Dave Debeau [00:05:05] Just makes sense because of a. Affordability, especially in the country, because because you're on the West Coast, you're in California, that's one of the most expensive markets in the States. From my understanding, Canadian housing prices have gone absolutely insane as well. So I can see this kind of thing, you know, being big in Toronto, in Vancouver and Montreal and some of our major urban areas that are getting priced out as well.
Scott Choppin [00:05:31] That's right. In fact, this product is a function of big cities.
Dave Debeau [00:05:36] So five bedrooms, four baths that's in a townhouse. And you say it's three levels and it's a double garage. Very, very. Yeah.
Scott Choppin [00:05:46] Yeah. So ground floor would be garage. And then actually we put a bedroom bathroom on the ground floor. Right. For grandparents or lives who are older and have mobility issues. Second floor is kitchen, dining, living, bedroom, bathroom and then third floor, three bedroom, two bath. So the interesting thing is that the five bedrooms get everybody's attention. But if you think about anybody who ever lived with multiple people in their family, the bathrooms is actually the real secret for bathrooms. Right. So if you're everybody's trying to get ready for school and work, bathrooms become the constraint. Right. And water tank, I think it is Camplin or have a pretty big one. Well, we do so. We do tankless. So ostensibly, Naboo runs out and then more recently, we're starting to do private sub metering on all the water for each unit. So no master meter, the older buildings grab one water meter, everybody use it endlessly. And so we moved to this private sub metering methodology which Belayed. And so the families, the water they use, they pay for it, which helps functionally on the economics. So how many of these units have you guys built today so far? Roughly? Yes. So we're right now on our eighth project and in those sort of group in two categories. So the beginning was what we called the demonstration phase that was for projects. And then we're now in our production phase, which is another four projects. And what we did in the demonstration phase, I mean, real estate developers that, you know, are generally optimists and risk takers, like that's sort of a self selected people come into the business that are that way, and I am that way, too. And so when we first started this program, I had over about a year and a half period, I have a background in some affordable housing that was relative to this middle income offer, but we still needed to test the model. Right. So what I did is I created this demonstration phase. We did small projects. We bought the land very cost effectively with the idea that experiment that if the experiment failed in the first two or three or four projects, that we would move on and nobody would be like Luza or, you know, economically we could sustain it.
Scott Choppin [00:08:01] So we moved through those four projects. In fact, the first three we sold and then the fourth one is complete and.
Scott Choppin [00:08:08] How many units per project?
Scott Choppin [00:08:09] So the early ones were really small. They were a two, three, four and a seven unit project. And the joke I make to people is I've never done a two unit project in my life as a developer. We did we always did big and still do big projects. But again, this experiment, like nobody had done five bedrooms at scale. And, you know, there's people in the marketplace that do are sorry, five bedrooms. You know, people are doing some here and they're very specialized, you know, local offers. But our intention was to grow the plan and scale it because we know the demand for this. The families, and particularly now roommates in the pandemic is massive. The undersupply is huge. The demand is high. That's the perfect market to want to enter into from a niche or a contrarian basis. So we finished all those sold the first three, the fourth one, the seven unit. We're like stabilize and we're keeping. And then now we have several more projects. So we have thirteen unit fifteen, unit twenty four. And then our biggest project to date is an eighty five unit project that's in development and we'll actually phase that, we'll do a fifty four unit, phase one in thirty one and phase it to be nimble. Right. We're in a very disruptive time in the economy, so we want to always make sure that we give ourselves options. When you're a developer and you take on a single phase one hundred unit project, you're making the whole bet right. Like you can never change that. So one of the ways to mitigate risk is you break in half for breaking into thirds. You go, OK, I'm going to build the first phase. If that goes good, then we can start the second phase, just a way of mitigating risk and one of several methodologies that we use to to mitigate risk, because at the end of the day, as a real estate developer, risk mitigation and conservative underwriting in the name of the game, I mean, we need to produce returns for ourselves, investors. And we've done that admirably, I would say. But, you know, we need to survive and then thrive.
Scott Choppin [00:10:06] So I want to understand the model a little bit more so you've got a number of these up and running already, you sold off a you you're holding on to some you've got new projects and you know that. That's great.
Dave Debeau [00:10:20] But again, just to get my head around your your target market so that the tenants that you have in these projects right now, where are they coming from? So what kind of living situations where they end before and how many of them are roughly family units versus roommate type situations? And then what kind of ideas? How does revenue and cash flow with this kind of product compare with a more traditional
Scott Choppin [00:10:50] house, for example? Yeah. So the so the families are always super local, like we rarely get a family that is imported from out of market. Occasionally we have that. But interestingly enough, we always get everybody super local. And the reason for that is that they have what I call stickiness and what stickiness is they have strong local social networks. And this is actually a huge advantage. Once you rent to them, why they stick around even in tough times. Think about kids are in school, churches down the street, extended families close by that generally are natively from the local area. And interestingly enough, what we've tracked is that the commute to work for the jobs that they have, which is predominantly service oriented, are between 10 and 20 minutes. So they're sort of like pairing their work life with their home life. And these are not people that commute for one or two hours a day. Each way they would work at Starbucks or they work at repairing cars locally or maybe they drive a bus. Right. These are like typical profiles of lower middle class type folks. Yeah, I call it blue collar, but it's 80 to one twenty one hundred eight one hundred twenty percent of median income would be the income levels. Right. But one of the special things about these families and the roommates is we have multiple earners in the house and that's a real key for recessions and affordability, because in recessions you have two, three, four people working. One person loses their job, the family sustains. They've got other incomes to, too, and they classically are sharing incomes and expenses. This economic sharing happens naturally. We don't like we don't make it happen. They're already living that way. They just we just happen to find them or they find us and they move into our unit. Right. So a lot of times, super local, they might come out of two apartments like we had a family that was like a mom and dad and mom and her kids and a dad were kids. They actually were getting married and providing the families. So we pulled them out of two units. We pull them out of an overcrowded housing situation. So their family of six living in a two bedroom apartment. Right. And that's obviously that's not preferable. So that would be the families. Now, the roommates are interesting in the pandemic. This is something we always knew we would have roommates like that. We just and but we've had a huge increase in roommates. And what's happening is as companies convert to working virtually permanently, they're releasing their employees from their location that they work traditionally. I worked in the city or that city and they're like, go live wherever you want. You're released from your geographic chains. And so we're finding as roommate groups that are coming together from some other affinity, as we call it. In other words, they were friends before or they were college roommates. So they had something in common that had them that brought them together. And then what they're doing is they're selecting a location where they all choose to live as what I call location agnostic. Right. They don't care where they live, like for their job. But what they do is they pick, oh, we want to be in Orange County. Want to be a California. Yeah, right. That's right. And so so what's happening is they're attracted to our unit size, our bedroom count. And then the interesting thing is a lot of times we're getting three people that rent a five bedroom and what they do is they occupy three bedrooms to live and sleep and then the other two bedrooms become work from home space. Interesting. So that that was not expected. Know the pandemic came and obviously changed very radically quickly people's living style. The other thing we're seeing is because we're a town house, you know, you go out your front door and there's no hallway or entry for your elevator going out the sunshine and the clear air. And then on the other side, you'd have your garage, your two car garage, which goes on a common driveway. So we're the building format doesn't have shared common space and you're inside your covid space. So that's been a unique. And then having new units, by the way, that nobody's ever lived in during the coronaviruses is like a real key. And we always have done that. New unit. New construction is our we've always done that. That's all we do. It's kind of a competitive advantage to say no one's ever lived in this unit. And that's perfectly. The Red Sea compare to like a house in that area, like where your rent is, what you're renting one of these units. So I'll give you a couple of statistics. So when we first started the program, I it was always my speculation that we competed with rental homes, just like you describe, like single family house for rent in the neighborhood. And so what we would do is we would always tag our rents off of what the local house rental market look like. So in Fullerton, one of our projects, we'd find the houses that were Ferrando were comparable, say, four or five bedrooms, and then we try to be two or three or four hundred dollars a unit per month per unit, less than the comparable house. We knew we're not a we didn't have a big backyard and a big front yard and white picket fence right now. I always told my leasing team, I said if a family had their choice, they'd always rent a house on a lot with a backyard and white picket fence. That's like that's the American dream, even if it was a rental model. Right. But what's interesting is the tenants that were are coming to lease with us. They don't even think of themselves. Davis's house renters like their apartment renters and their mind. And what's happened is they're finding our five bedroom apartment unit. That's how we advertise it. And they come and check it out. They go first. They go, oh, this is really nice. Is this for sale? And we go, oh, no, it's for rent. So if I wanted to move in here, I could read this. We go. Yes, at first we scratch our heads going like. But we realized that it was so different that these families didn't even believe that it was not that it was real. They could see it. But that, like, this is so unusual. You'd be right. Really noteworthy for four tenants to see this. OK, so to answer your question, we're renting on average a five bedroom Forbath unit for thirty five hundred dollars a month. That's our rent really throughout L.A. and Orange County. Pretty, pretty standard across the board. That's about two dollars a foot. And so the other metric we use is if we compare ourselves to regular new rental housing. So your classic multifamily new construction in California were easily three to four dollars a flat for rent. So you might get that. Thirty five hundred dollars rent get got you a two bedroom or maybe a three bedroom if that even existed. And so from a full dollar, rent is the real key from a whole dollar rent characteristic. We're hugely competitive. And then what the metric becomes for these families and these roommates is they divide the rent by the bedroom and set of foot, which no tenant thinks of rent in a per square foot. They go, what's my monthly like a car payment like I got. I got to pay that. That's how they organize their lives. But what they do is they go, oh, I have five bedrooms. Thirty five hundred. They can do the math. So I have this bedroom. You pay this much, that kind of thing. So the metric is the bedroom count and the rent four bedroom, whether it be for families or roommates, it ends up being the same.
Dave Debeau [00:17:59] Fascinating time flies where
Scott Choppin [00:18:01] I have a glance gone. So if people want to find out more about you and your urban townhouses, what should they do? So what I would offer for folks, they can go to our website, Triple W, Urban Pacific dot com forward slash e-book, and we'll make the offer to your listeners if they sign up for our email list that could get this e-book. Its How to thrive and survive a recession, which is the lessons that we took from us going through as real estate owners, investors and developers through the 2008 recession. And I think it's timely to for people who may be new to the entrepreneurial space to to look at that. If folks want to visit our investor education section on that same website or Sivak dot com, lot of investor education materials and specifically for investors are thinking about new construction investment versus the value add investment. We do a lot of education about how to underwrite new construction if you're not familiar with it. I be most sophisticated investors that probably have experience in that. But some people are making that transition. And we spent a lot of time teaching, educating videos, articles, blog posts, tons of data in there that can be helpful for people that are looking to make that transition.
Dave Debeau [00:19:13] Good stuff.
Scott Choppin [00:19:14] Awesome. So there you go. Thank you very much. It's been a lot of fun. Thank you for enlightening me as to what
Dave Debeau [00:19:21] an urban townhouse this sounds. It's a great idea.
Scott Choppin [00:19:24] Thanks, Dave. Appreciate the invite.
Dave Debeau [00:19:26] All right. Take care and we'll see you on the next episode. Well, hey there. Thanks for tuning into the Property Profits podcast. If you like this episode, that's great. Please go ahead and subscribe on iTunes. Give us a good review. That would be awesome. I appreciate that. And if you're looking to attract investors and raise capital for your deals, that may invite you to get a complimentary copy of my newest book right back there. There it is, the money partner formula. You got a PDF version at Investor Attraction book, dot com again, investor attraction book, dot com ticker.