We Learn How To Fund a Tiny House Development with Banker Allan Tormohlen – It's Not a Tiny House Podcast

Wyatt: [00:00:23] What we need are safe, secure places that someone can actually afford to live inside of.

Barna: [00:00:29] And this is a recurring theme of we're not going to let you do it.

Wyatt: [00:00:33] And you want a different lifestyle. It's Not a Tiny House podcast.

Barna: [00:00:37] I've got the first question because this is the hardest one. So we're talking to Allan today. Got it. How do you pronounce your last name?

Allan: [00:00:46] It's pronounced Tormohlen.

Barna: [00:00:48] Oh, just like it reads.

Barna: [00:00:51] Well, you never know.

Barna: [00:00:53] I'm just bad at names right now.

Barna: [00:00:55] I never know. And it looks like you've got. So you set up shop over in Pueblo?

Allan: [00:00:59] No, actually I'm operate out of my home office. I work for SPDC as a business consultant and I'm doing that almost entirely over the phone.

Barna: [00:01:09] How do you like that?

Allan: [00:01:10] Kind of thing so. Oh, I like real well. I have just been doing it for a short time, but OK, it's a part time thing for me and and it's fits with what I want to do and what I'm interested in and helping businesses.

Barna: [00:01:22] So and I know you from I think first time was Bank of San Juan. I don't remember how we met initially because I was not out and about. But anyway, maybe it was at the bank. What about you there? You got me my first ever commercial loan and working with you was just great. I tried to get a couple of commercial loans before that and actually tried to do it in Phoenix. My friend and I were looking at buying some property down there. This was years ago and I yeah. Gave them talk to a banker. There was supposed to be the banker gave him my taxes. You know, it's one hundred some pages. And the guy just after two days throws up his hands and goes, this is the most complicated taxes I've ever seen. I gave them to you. And you're like, it's not that bad.

Allan: [00:02:11] No it's not that bad.

Barna: [00:02:11] And then you're like, well, this this this business is doing this, thats for a reason. Right? Right. OK, yeah. OK, cool.

Allan: [00:02:17] I've been in community banking for about forty years, so I've, I've worked with a lot of clients.

Barna: [00:02:23] So not your first day.

Allan: [00:02:24] Not on the first day.

Barna: [00:02:26] Right. And you know, and you know, inside of a packet of information, what is useful and what is useless.

Allan: [00:02:31] What's important. What's not.

Barna: [00:02:32] Right. And that's, that's part of the the, the word problems that they give us as kids is like here's a here's a paragraph. How do you quickly dissect what you actually need from it? Because most of it's just B.S., right. And go. Yep, I know what I'm looking at.

Allan: [00:02:45] To pick out the few important parts that you need. And make a decision and move on and my goal's always been try not to let things linger and take too long. Let's find what we need and move on.

Barna: [00:02:59] And I think you're one of the only people that have ever come out and actually looked at the property.

Allan: [00:03:04] Well, that's that's so critical. And early on in my career, they didn't do that. But I tell you, it got to the point where it's just so important to get out and meet the customer, be have your be on the site, see what's going on and understand better what's going on.

Barna: [00:03:20] Yeah, because I don't know how many loans I've gotten with the person. Never actually looked at the property. I never like I had a lender who I never met. Yeah. And he's done six loans for me like its crazy.

Barna: [00:03:30] It's I was talking with an engineer yesterday on a foundation and the the will-be homeowner was like, well is he going to go and do a site visit? And I'm like, I hope so because I couldn't imagine designing a foundation for a home. This is a lot like a loan, right? This is the backbone of how this whole thing is going to operate if you need it. How could you possibly design a foundation or lend especially any amount of money without going there? I don't think that they can. They can do the math both, like all you guys, when you're a professional at a certain thing, you can kind of do it blind, but it makes a heck of a lot of sense to not.

Barna: [00:04:08] It could look great on paper, but, you know,

Barna: [00:04:10] Then you show up, you're like, wait.

Allan: [00:04:12] You have a loan request? You know, you can do the math. That stuff's all easy. But, you know, I just have a personal interest in knowing more about the business and what what's really going on out there.

Barna: [00:04:22] It sounds to me like you're invested in the community.

Allan: [00:04:25] A little bit.

Barna: [00:04:25] Amazing.

Barna: [00:04:27] I so you've been at this for forty years. And I think, like, right after like, I went back to the bank and and they told me, you're retired.

Allan: [00:04:36] I did retire and I went and worked at another bank for a while and then I retired and then they needed some help again. So I came back for a little while.

Barna: [00:04:46] This is and I've said the joke before, but now we're doing it on air. I said, this dude's like the Michael Jordan of banking, OK.

Barna: [00:04:51] I pointed at Wyatt, this is where you say the joke. Its set up.

Barna: [00:04:57] He's too good. You're too valuable.

Barna: [00:05:01] And then you are back at it already?

Allan: [00:05:02] Well, on a part time basis, yeah. And this is a from the other from a different angle instead being the banker in the transaction, I'm trying to help people, not directing them to any particular bank or anything and just trying to help them.

Barna: [00:05:14] But you're going this is what a bank is going to need.

Allan: [00:05:16] Right. Exactly.

Barna: [00:05:17] And so you're helping a business, a business owner or would-be business owner, whoever draft their paperwork accordingly so that when you do go to the bank, that lender, prospective lender goes, oh, you're communicating with me effectively.

Allan: [00:05:30] Yeah, higher higher probability of success when they go to the bank. If they go in, I mean, because I've seen both sides of it over the years and people that come in well prepared and people that, you know, just woke up this morning and had an idea and they're already at the bank looking for money.

Barna: [00:05:46] I feel attacked. I'm kidding but we've all met my mother who is a little bit like that. She's got a great idea. And most of the time she finds a way actually pull it off.

Allan: [00:05:56] Know, but that's all right, too. And that's where SBDC comes in. It can help people with ideas, get it down into something manageable and something that can be shared with the banker or other investors or whatever the case.

Barna: [00:06:09] Well, and to help creative's, this isn't this isn't a creative's hallmarked. This is not what they do. This is not what like a business entrepreneur and the wheelhouse. They do the thing they do.

Allan: [00:06:19] Business business people generally do have our idea of people and they're not necessarily good at paperwork. They're not necessarily good at or organizational skills or not. There's there's a lot of things that they're going to need help with. And that's just one of them.

Barna: [00:06:35] Yeah. So you're taking the you're taking all of us who have a little bit of ADHD who decide they're going to just start their business and ready fire aim. Right. And you go, OK, well, let's dial it in. Oh yeah. And that's what we need. But we usually don't find that out until we call you.

Allan: [00:06:51] It's not what you need. And it's not what you want to hear. Generally, it's like, you know, I already know what I want to do.

Barna: [00:06:56] Principals in the room.

Allan: [00:06:56] This is this is going to slow me down. Well, I'm sorry. It is going to slow you down.

Barna: [00:07:00] But but it will help you in the long run because it's going to it's the tortoise hare part of the conversation. Right. Know this is going to add longevity,

Allan: [00:07:08] You know, and then people say, well, jeez, I got to do this just for the bank. No, you don't do it for the bank. Do it for you.

Barna: [00:07:12] You do it for you and the business.

Allan: [00:07:15] We want to help you succeed.

Barna: [00:07:17] You should have done this for yourself in the first place.

Barna: [00:07:19] Right. But so many I mean, like of early stage business owner, I'm guilty of this. Right. And you identify purely with your business. There is no clock in, clock out. You wake up. You are that. And so trading that hat for that conversation of how do I figure out how to do all the money and make it all look right. Don't do that. Do what you do well and find guys like Allan if you can't find him specifically and then they'll help you.

Allan: [00:07:46] In a lot of times businesses get started and then it's like, oh, my God, now what do I do? And then so then they come back and I talk to him. So it's what I do. It's not purely with people planning to get in business. It's a lot of times it's people that are in business and are encountering a problem or or an issue that they hadn't anticipated.

Barna: [00:08:05] Cash flow, scale. You know, they come and do a big project,

Allan: [00:08:08] Payroll, bookkeeping. What kind of entity should I be? OK, what kind of insurance do I need for my business? I think basically.

Barna: [00:08:19] Do I qualify for a PPP loan. Now, nowadays, there are various various other things I have to assume.

Allan: [00:08:25] That's that's a more common question today is I didn't get my PPP loan last year when I could have. Can I still get one? Do I still qualify? Some people are like I didn't I didn't apply initially because I was suspicious of the program. I wasn't sure how it worked.

Barna: [00:08:41] I'm still suspicious of the program.

Barna: [00:08:45] You may be forgiven. Well, that's helpful.

Allan: [00:08:47] Yeah, maybe forgiven.

Barna: [00:08:48] Not you will be forgiven if I do these steps. That's my concern with it.

Allan: [00:08:53] Experience shows that basically every small business I don't know of one that has not been forgiven.

Barna: [00:08:59] OK, and you've worked with a number of them.

Allan: [00:09:01] Oh yeah. When I was still in banking, I handled a number of applications and and a lot of those, some of those were forgiven before I left. But just due to timing, when I retired, like those were forgiven after I left.

Barna: [00:09:15] When you retired when you re re re retired. Nice.

Barna: [00:09:19] OK, so let's get back to because you know you're here because we have an agenda.

Allan: [00:09:24] Really.

Barna: [00:09:25] You have an agenda.

Barna: [00:09:26] I have an agenda. I need numbers. So we had a conversation. We've been having conversations that we have access to land, we have access to a method of construction that beats everybody else's price. At this point, pretty much. The current issue is square footage at the zoning level. But we can we find a way around it one way. But we're also looking at other solutions. But one of the solutions is doing a PUD, planned unit development and we, like I said, we have access to different pieces of property where we could do that. The problem every single time when we run the numbers is that it's at least half a million dollars in the ground before we build the first thing that we can sell. Is that something that banks have the appetite for?

Allan: [00:10:23] Only with very well qualified borrowers, because they're like you said, that the investment up front just to get get it off the ground is huge. And we've all seen development projects that got started and faltered. Some of them totally died on the vine. There's so much money up front. And there's so there's so much risk of, you know, start this development project today, a year or two down the road. There's some economic calamity that, you know, lots of things.

Barna: [00:10:55] So the development timeline is also the concern. If I'm building a single family home and I write in a year, that's less risk than if I have to spend a year on dirt work. And then I do the first house. And now the the price I had to pay for the land in this market. And the work is, is that might drop out where even if the bank retains the land. Right. It doesn't have the value of what we put into it.

Allan: [00:11:24] And we saw that right here in Fremont County, you know, with with the original Four Mile Golf Course, that big development, all that. And, of course, the economic downturn, things happened. It's going well now. It's been a lot of houses out there, but it took several years to recover. And get to that point.

Barna: [00:11:41] What is the definition of a well qualified applicant for a project like that? I mean, my credit scores at least 650 right now, so I should be good, right?

Allan: [00:11:52] It's not it's not all credit score based. So, you know, it's going to banks are generally looking for larger down payments into those kind of projects. Like you're looking at a home mortgage, you're generally looking at 20 percent down. And certainly there's a lot of mortgage loans that we can get in for less than that in a development loan. No, you're talking 30, 40 percent down, depending on the bank and their tolerance for risk.

Barna: [00:12:18] And is that that's loan on the value of the project on the loan?

Allan: [00:12:21] Well, it's going to be the loan usually is established based on the total project, but it's usually set up as a phase in kind of situation so that, you know, they want to make sure that the developer is putting some of their own cash in there as they go along to. And the bank bank obviously is trying to protect their interest and make sure this is going to get repaid.

Barna: [00:12:43] Ok, so it's high risk for basically if you're starting from scratch, what if there's already an older building? I know older buildings have more risk than newer buildings and you want to redevelop something like that with the price tag is still, let's say, a million dollars. How do you go about getting something like that financed?

Allan: [00:13:02] So it depends what kind of older building you're talking about, but that's a little more. I mean, there's risks there, too, because there's unforeseen things as you get into that building and but there can be budget cost overruns. And so, again, borrower needs to be well qualified, have have additional cash available or additional cash flow available to help support it, if there's any surprises in the project. But it's more maybe in a lot of ways a little more comfortable for the bank depending on what it is, because at least there's a physical building and you kind of know what the costs are going to be and you can isolate that.

Barna: [00:13:43] So because the I'm asking these questions because the current problem in the area anyway in Florence is that you're running out of buildable land or land, at least that has infrastructure. And with construction costs and everything else. So we discussed this before. The need was like three hundred units. A couple of dozen have been built. The only way to do that is you got to develop new land. And that's you just said there's a major hurdle with that because, you know, if it's half a million dollars, you need 40 percent down. Yeah. And that's still a lot of money.

Allan: [00:14:23] That's a lot of money. So there's you know, people ended up doing these developments generally are people that have experienced with it. They've got some cash available to support it and they can manage that risk and take the risk out of it for the bank. Not a not everybody can go in and get a development loan, that's for sure. And especially like you guys are a little creative you're looking at, which I'm all for in terms of creating housing that's more affordable to people. But sometimes when you look at nontraditional homes and the banks are like, oh, my God, this is a little different than I'm used to.

Barna: [00:15:00] And it's just it's just a metal sided building.

Barna: [00:15:03] So I look at it like it. Yeah. But I look at it like you could become the first prospective investor in something that could be great. Right. And so when, when you do you look at the creative versus the bank, you look at risk averse versus stagnant averse, right? I can't tolerate doing the same thing again, that mold shows that it doesn't work right now.

Allan: [00:15:24] I hear you.

Barna: [00:15:24] And so, like, it's it's this interesting thing of like, well, let's come to the table and tell me what that's why Barna's asking the questions. Tell me what exactly you need to see so that we can take a micro project, four or five units and turn it into 40 or 50 units. Is that a good enough market test?

Allan: [00:15:43] Oh, yeah. Yeah, I think so. And of course, the other issue is it's not just the development. You've got the development, you got the construction and then you've got the permanent. So when the buyers come and buy these units, can they get financing for them?

Barna: [00:15:56] Exactly.

Allan: [00:15:57] And can they and and if they're non-traditional type housing units, then it's they're not probably going to get sold in the secondary market. They're going to have to be in a big portfolio.

Barna: [00:16:08] So they have to sit at a lower dollar amount or a higher down payment?

Allan: [00:16:12] Probably a little higher down payment requirement.

Barna: [00:16:15] What about 20 percent on a one hundred thousand dollar loan? I mean, that's not a huge chunk to that to a bank, right? A hundred thousand dollar loan?

Allan: [00:16:25] No, it's not a large loan. No, but, you know, if the bank's looking at getting into several of those and then they've got to. Yeah.

Barna: [00:16:34] So the risk for the bank has to be distributed too is the way I learned it when I was up in Denver. Is we had somebody who also invested in the same condo building that I was in and their banker flat out said, yeah, you have to high a percentage of this building because they owned I own three units there, but they owned six in the whole place was 22 units. OK, so it's like when you own a quarter of all the. Yeah, it's like yeah, you need to diversify that.

Barna: [00:17:07] So we would need four lenders, five lenders that we're all going to spread instead of just one that was going to always. Right.

Allan: [00:17:13] That would be ideal.

Barna: [00:17:14] Interesting. So that's something I would have said. I want one lender because then they get it. They understand it.

Allan: [00:17:19] And you know, once the market gets established and you start having a few, a few and then there's a demonstrated market acceptance of that kind of house and there's there's buyers and then there's comps and then there's so.

Barna: [00:17:34] We're trying to demonstrate with cash flow. So we're going to put them on Airbnb, have run ins, vacation rentals or hotel, and that can demonstrate cash flow. And we're looking at, you know, 100 bucks a night or are around there. And a friend of mine texted me yesterday while I was out on my nine mile hike.

Barna: [00:17:53] I like you had to add that in there. I was hiking.

Allan: [00:17:56] How long is that again.

Barna: [00:17:56] It was 4 hours. My life is so hard.

Allan: [00:18:05] When do you find time to work?

Barna: [00:18:06] I didn't get anything done.

Barna: [00:18:06] You know I didn't hear Allan say I golfed 36 holes yesterday.

Allan: [00:18:13] I'm not whining.

Barna: [00:18:17] Life is so hard.

Barna: [00:18:17] Was that your friend who sent you the message about the.

Barna: [00:18:20] Yeah. So he sends me a text that in Hocking Hills, Ohio, there are shipping container houses. That was in Ohio. That's in Ohio. Hocking Hills is like an hour and a half south east of Columbus. So there's I think I was Lancaster is around or something, but nothing major around there except old man's caves. It's just a little water fall.

Barna: [00:18:42] It's like a little hiking area.

Barna: [00:18:43] Yeah, it's a little hiking area, wooded, large lots. I'm going to say probably about three decades ago it was nothing like there was nothing out there at all besides this one place to go hike little tourist destination. And then some guy got the idea to start, start, start buying up like five acre lots or buy up a big chunk and then cut it up, started putting cabins on there. And I rented a cabin there. We went up there to go rock climbing and do a bunch of other stuff, but a several bedroom cabin would be a couple hundred bucks a night. And I'm saying we had six people, seven people staying there.

Barna: [00:19:23] And these are only some acreage to just like lay the landscape there on five to 15 acres.

Barna: [00:19:27] You do not see another building.

Barna: [00:19:29] Yeah, yeah. So it's really part of the experience.

Barna: [00:19:30] And so I checked it out. It turns out the shipping container houses are like these cabins. Somebody's built three of them, a single unit like a double and triple that's like double stacked. And the cheapest one. Five hundred and twelve dollars a night tonight. Average.

Allan: [00:19:46] Oh wow.

Barna: [00:19:47] You can look on their calendar. Whether or not that's totally transparent, I don't know.

Barna: [00:19:50] Booked. Solid. Because I wanted to go this month I'm going back to Ohio. I want to go check these out, see what they look like, talk to the owner. You're not getting in there.

Barna: [00:19:59] Red exes. And that's one of those things where it's like 500 bucks a night. I said that to you yesterday, I think, or I was writing it if we booked it twice in a month. That's showing to a bank the right amount of cash flow. Now, you're not necessarily worried as much about the physical somewhat, right? It's building on foundation, but you're worried more about the cash flow.

Allan: [00:20:22] Absolutely. Once you establish that cash flow, yeah.

Barna: [00:20:25] Does a bank worry about that? So, OK, say it's a shipping container house. But once you have your plumbing inspection, electrical inspection certificate of occupancy, local building codes are met. Does the bank really worry about the fact that it's a shipping container or just that it's different because it has met every standard that every other house has met?

Allan: [00:20:48] Yeah, at that point, I don't think it matters anymore. I think that once the cash flows going, the main thing, the bank's thinking is OK with the cash flow, it's generating enough cash to pay for itself. And even if this guy if this owner fails for some reason there's a market, somebody would come in and buy this and they could see the cash flow and rent it out.

Barna: [00:21:07] And then you're going to buy that and go, I'm trading you X amount of thousands of dollars today for X amount of dollars per month, in perpetuity. I mean, that's the difference between capital and cash flow. And this is where I have to like, try and make sure that I'm kind of unpacking everything so that anybody who would be listening is like, you're right, makes total sense. OK, so now instead of it even be an asset? It is essentially it's a cash machine. And you go, this cash machine is worth X amount of things. But when you have a business that is a cash flow generating business, like a rental would be. And that as a physical asset. Does that add for the bank and how long do you want to see cash flow ? With a house it doesn't matter. As soon as you have COs, you have a house.

Allan: [00:21:53] That's because everybody knows houses are worth X amount. There's comps all over the place. There's a history. There's a market. So with something that's nontraditional, it depends on the bank. It depends on if, but in their in their confidence in the owner developer. But, you know, anywhere from a year to two years kind of thing.

Barna: [00:22:16] Oh, it would be that long.

Allan: [00:22:19] Now it could be faster because even a few months, you know, if I thought if I'm the bank and you're I can see you've got one or two of them up and they're cash flowing, you want to do one or two more. I mean, you just start building as long as

Barna: [00:22:31] That was going to be my question. So what's the difference between the bank and the banker? So you mentioned earlier, like if the bank is on board, but don't you need a banker that's on board first who presented to the bank, especially the local bank? You've mentioned that it was like a board that decided.

Allan: [00:22:47] You need a proponent for you to to support the idea to the bank itself.

Barna: [00:22:54] So the attitude of the banker matters a lot towards your project?

Allan: [00:22:56] Yeah. And it's the kind of thing that if if the banker that that you happen to talk to in that case, if they're not involved and they don't know understand it, they haven't been on the site, they they're not going to be the right the right relationship for it.

Barna: [00:23:12] They haven't been in the butcher shop yet. Like so you got to you got to kind of know that that what you're looking at. Now I got another sidebar question on that whole conversation. Right. So we've created something ourselves if if we sold parts of that. Equity inside of it. Would that be considered a comp?

Allan: [00:23:34] Set, such as bringing investors you mean?

Barna: [00:23:36] Right.

Allan: [00:23:37] OK, no, that really wouldn't be a comp, but it it helps to demonstrate value in the enterprise because other shareholders are now willing to invest.

Barna: [00:23:46] Yeah, you're adding belief.

Barna: [00:23:50] So many questions again. So we talked to somebody who's trying to do a larger development of non-traditional housing. She's running into financing issues, investment homes, other stuff where it's a lot of money, it's a lot of units, it's a lot of money. So it's a lot of risk for the bank because as you just said, so if we would have come to the bank and said, I've got 10 acres, we're going to build 70 units are all going to be shipping container houses. We've never done this before. Can you please give us three million dollars? That would not go well or that would go incredibly well for us?

Allan: [00:24:21] That probably would not go well.

Barna: [00:24:23] Why did you even say probably?

Barna: [00:24:25] I don't know. My credit score, like I said, is probably six fifty, so that might sway...

Barna: [00:24:30] So that's a pretty easy no.

Allan: [00:24:32] Yeah.

Barna: [00:24:32] But OK, you want to do seventy units now and you've already have four?

Barna: [00:24:36] But if you have, if we have four units they have been proven to generate cash flow. Let's say we have we use that as a showroom. So we talk to a realtor before this. You know, Wayne, we've talked to him about this before and we brought it up. It's like, OK, we want to do 70 units or 40 or more. We do more units. Can you presell them?

Allan: [00:24:59] Right.

Barna: [00:24:59] No.

Allan: [00:25:00] That would be huge if he could.

Barna: [00:25:02] He's basically, nope.

Barna: [00:25:03] Not like what if we have really nice renderings? No, I'm not going to do it. You need something you can show like, OK, we have that now. So we have something to show that's that's a showroom for us. As much as it is an income producing asset,

Barna: [00:25:20] It's a living, breathing model home.

Barna: [00:25:22] Yeah. Yeah, it is our model home. Yeah. So then if we show interest through a realtor, so if a realtor says pushes this out to their network and says this is a new development that's possibly happening and we bring you a list of 100 people who are interested at that price point. You as a banker or the bank, we we bring a list of 100 people that say we're interested and we know there's only fifty units and we know this is the price point and we're interested. Is that something in the bank would value at all?

Allan: [00:25:56] That would add some credence to the project, but it still probably would not change until you actually get some. And if you can come up, I would suggest you'd come up with a phase in process. But as you stated earlier, a lot of times there's a lot of upfront costs before you get that that first unit.

Barna: [00:26:12] That's the thing. So even if we're looking at developing four acres, not 10, we'll get in developing four acres or three acres, which we also have access to, then that would be kind of like a smaller chunk. But the problem still is that you got to run that sewer line. You got to pay for all the water taps. So it's still a lot of money in the ground, even if we're only doing the first phase and we can't just do a first phase here, we have to pave all the way. Right. We have to run it through all the way because we're not digging up that section of road again.

Allan: [00:26:45] So the key in your case might be kind of like you guys have done, where you start with a smaller parcel of ground that doesn't require a lot of infrastructure and get some units on the ground and demonstrate their ability that there is a market demand for them. And I know those are VRBO type things rather than permanent residents. But, yeah, that that's the

Barna: [00:27:08] Closest we could get to touching the bubble. Right. Like it. We can do this, but we can't quite do that. But now you don't need as much of an imagination for me to say this is be where your kitchen going to be. Yeah. And right now it's it's a standard hotel room where your sink and a countertop in a coffee maker sits. Well, it's not such a stretch of the imagination anymore where you can walk inside and there there, you know, I mean, so the comps thing creating a sale of that product likely has to show up in the first couple of times as cash.

Allan: [00:27:44] It may. Unless a bank, a bank might say, hey, well, we'll finance it for a buyer, but we're going to require a little larger down payment.

Barna: [00:27:53] A chunk.

Allan: [00:27:54] Yeah.

Barna: [00:27:54] Like if we're selling a product for

Allan: [00:27:56] Because we're not sure about this yet, but we're willing to give it a try. But instead of 20 percent down, we went 30 or 40 percent down.

Barna: [00:28:02] Or we want your land. Yeah. If you own your land, you can sometimes use that on a construction loan as a lever because you're going to bring then 30 percent, you know, to the value for the loan. Right.

Allan: [00:28:14] So a community bank might look at that and say, hey, you know this. We understand there's a housing shortage, that we understand that there's a need for this type of housing, even though it's nontraditional. But, you know, they may look at it and say, you know, under the right circumstances, let's finance a few and just see see what the market how the market accepts this.

Barna: [00:28:33] And even if even if you could use it as an accessory dwelling unit to an already existing property. Right. Because then you've got an even larger lever. Right. Right. Because you're bringing equity in to what you've already bought into your property, especially if you've been there 10 or 15 or 20 years. You've got enough equity in that to kind of cover the difference you're just taking. So, yeah, yeah. I mean, if you got a hundred grand in equity, which is probably possible for many people, especially now, because they're equities appreciating there and they're getting money because the market's high.

Allan: [00:29:03] I think that's an excellent opportunity. There's a lot of people that have suddenly found themselves with more equity than they thought they had.

Barna: [00:29:10] Right. And so now you would reify or you would do something like this.

Allan: [00:29:14] And really the loan could be based on the existing property and not that additional dwelling unit.

Barna: [00:29:19] But that's less risk for the bank currently is what what you're saying to to pull money out of an existing property. Let me ask the question where I'm way more conservative, I guess, and some people. Is where are we in the boom bust cycle when it comes to real estate? Because there's all kinds of pointers. And I mean, we just talked to Brad and and there are people fleeing big cities to come to rural communities. There's a new economic opportunity here, but not enough housing. So that's that's an issue. Where are we now with how far the prices can go? $50000 other houses are three hundred thousand dollars right now.

Allan: [00:30:02] I'm sorry. I didn't understand.

Barna: [00:30:03] How houses that used to be fifty thousand dollars here in town are three hundred thousand dollars today,

Barna: [00:30:08] Five to seven years.

Barna: [00:30:09] Without anything changing. It's not like it's a new roof, repainted and everything else.

Allan: [00:30:14] No addition or whatever. You know, I, I don't know how to answer that question. I have a lot of concern about where we're at nationally, economics, just I think I think a community like Fremont County, Florence, Canon City, so on. I think there's a lot of opportunity here for us. A lot of people find our area desirable and want to be here, and that drives up market. But I'm also very concerned about our national economics. And I don't know if there's I don't know where that's going.

Barna: [00:30:46] We don't know where the snake in the grass is.

Barna: [00:30:48] So this is where the question is that if we're going up to a bank and we want to say we want to develop this property and we need this many units, how close are we in the banks eyes to seeing like we don't know what's going to happen in two years? Or is the bank saying this is a rocket ship and we just lifted off? Because if the bank is looking like no, no, no, this is a Titanic right now, but like we were we were partying last night. Yeah, but there's an iceberg over there and we can see.

Barna: [00:31:21] But there's also the real reality that regardless, there's a housing shortage.

Allan: [00:31:26] Right.

Barna: [00:31:26] So you you kind of have to still create more housing, do not?

Allan: [00:31:30] Well, I would think so. Yes, I agree.

Barna: [00:31:33] So I mean, but I just asking about all the variables in there. I am not making an argument one way or another.

Barna: [00:31:39] No. As Lester said, is that Colorado and other similar states are full of second homes. So as a banker or as a bank, you're looking at a second home is a much higher risk than the primary home. So if we have I don't know what the percentages. I mean, you might.

Allan: [00:31:55] Well, I don't know either, but I know like up in the Salida market, there's yeah. The last crash, there were lots of second and third homes.

Barna: [00:32:02] That was that's what happened with the condos I bought cheap during the last crash is somebody's bought them it's a great investment bought them over the phone and I'll buy all these condos because it can only go up. Bought for one hundred sixty. I bought them for 30. Because it can't go down you once it gets to 30. Famous last words. 160 grand for for 800 square feet, you know, almost 200 dollars a square foot for a condo. You don't even own the roof.

Barna: [00:32:34] And no, I'm saying that we're obviously we have to build more units. Isn't a prop up against the fact that the market value can change? I was just kind of going like, we have to talk about all the pieces on the board. If we're going to have the real like I don't I don't know with all of that. Barna, have you gotten enough of your questions answered?

Barna: [00:32:51] I'm good. That was great.

Barna: [00:32:53] Allan, thank you so much.

Allan: [00:32:54] Gentlemen thank you.

Barna: [00:32:54] Thank you very much. Now you can go play golf.

Allan: [00:32:56] I wasn't sure what to expect.

Barna: [00:32:57] Well, did you enjoy it?

Allan: [00:32:59] Oh, yeah. This is great.

Barna: [00:33:00] Thank you for saying that. Yeah, it's on. It's still in the record. You haven't shut the thing off yet on the record, you know. So yeah, our aim here is to is to help educate ourselves and others. Oh yeah. By pulling people like yourself and other smarter folks with more experience than us. Because one thing I've learned is that education is one thing. Experience fills in the gaps. And that's definitely where, you know, we kind of we can read all the books we want, but we haven't felt it. And that's what what we're able to help us kind of round out.

Allan: [00:33:25] Well, I hope everybody enjoyed it, and I certainly enjoyed it. Thank you.

Barna: [00:33:29] Absolutely. And thank you. Thank you again. And you guys, you can look up Allan, do you want us to give?

Allan: [00:33:34] Yeah, well, yeah. I would like you to go out and give a plug to SBDC, anybody that if you're thinking about starting a business, if you're already in business, if you just have some questions about a certain facet of your business. We have educational opportunities, online educational opportunities. Just go to the Southern Co. SPDC.org website. There's numerous classes out there right now. They're free.

Barna: [00:33:59] Free education.

Allan: [00:33:59] Yeah. And they're online. And you can pick out topics that you want to learn about where you go. And you can get set up consulting sessions for specific questions if you have them. And that's where I come in and I'll try to help when I can.

Barna: [00:34:15] For those of you who listen, has a massive resource. So so do you take advantage of that?

Barna: [00:34:19] And we'll have all that information in the show notes and your contact info will be there. Maybe not your cell phone.

Allan: [00:34:25] Maybe not my cellphone. I mean, I'm certainly willing to take calls, but a lot of it is handled through setting up appointments through SBDC.

Barna: [00:34:34] Go through the appropriate channels. See you guys in the next one. Thank you.

Barna: [00:34:38] Follow us, like us, share, subscribe. Follow us on YouTube, Instagram, Facebook or wherever you consume your podcasts.

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