Meredith Munger Stowers (formerly Leyva) helps people achieve their goals. Stowers currently handles marketing and business development at CrossCountry Mortgage and ADUlonas.net with a focus on helping families, buy, build, renovate and refinance a property, notably Accessory Dwelling Units, (ADUs). She operates ADUloans.net and serves as a founding member of the ADU Coalition, an advocate for attainable housing.
She recently wrapped up her nationally syndicated column, “The Marketing Coach” in the Business Journals. Previously, Stowers served as Chief Operating Officer for Voices Heard Media, the leading social media applications and consulting company serving clients including Disney and Scripts Networks. Before that, Stowers served as a consultant to Military.com/Monster.com after that company acquired her online community and magazine, CinCHouse.com, where she was CEO and editor. She is the author of “Married to the Military: A Survival Guide for Military Wives, Girlfriends and Women in Uniform” (Simon & Schuster, July 2003 and 2008). Her editorials and news articles have been syndicated to over 140 military base newspapers worldwide, and she has been a contributor to Army Times Newspapers, the USO’s “On Patrol” magazine, Military.com and other military publications. Meredith regularly represented CinCHouse.com in the national press, including feature stories on CNN, Fox and NPR. Her work with CinCHouse has also been featured in such publications as USA Today, the Washington Times and Joint Forces Quarterly.
As part of her work on CinCHouse.com, Meredith founded Operation Homefront which is now the fifth largest charity serving military families.
Previously Meredith worked as a public relations consultant and lobbyist for a variety of companies including CareerBuilder.com, Boeing, Eli Lily, Motorola and Iridium. Meredith also served as director of Public Relations for the American Enterprise Institute and legislative assistant to Senator Jon Kyl (R-AZ). She served on the National Advisory Board of the Independent Women’s Forum which published her 2001 book on Social Security reform entitled “Women and Retirement Security.”
Episode Notes:
Narrator  This is The Norris Group’s real estate investor radio show the award-winning show dedicated to thought leaders shaping the real estate industry and local experts revealing their insider tips to succeed in an ever -changing real estate market hosted by author, investor and hard money lender, Bruce Norris.
Aaron Norris  Everybody it’s Aaron Norris with the Norris Group and we are back today with Meredith Stowers. She is with Cross Country Mortgage and ADUloans.net talking today about ADUs, SB 9 and SB 10. Let’s get to it. In your experience are, I’m just curious as a question, I don’t know, people updating the primary residence as well at the same time.
Meredith Stowers  Oftentimes, oftentimes, and there’s a lot of good tips and tricks. If for example, you have to add solar in California to the detached ADU. So, add solar to the whole home and charge include the cost of electricity in your rents. One of my clients who lives on the property bought an electric vehicle, and he’s joking that his renters are paying for his gas too. So, there’s a lot of good, there are some people who are concretizing those ADUs, they’re going to they’re creating a mini HOA, and selling off those properties in order to pay for the primary home. The main reason for SB 9 is really if you can’t build enough, lots like if you’re in an area that only allows one or two ADUs, you can split the lot to add additional ADUs. And so I’ve seen a traditional single family home. And ultimately after two lots widths and a bunch of ADUs, you can get about seven extra units on the property and it’s cash flowing 10, 15,000 a month. A month.
Aaron Norris  Wow.
Meredith Stowers  So, um, yeah.
Aaron Norris  How has COVID changed the loan programs? Does it make you nervous? Or is construction taking a little bit longer? Supply chain disruption?
Meredith Stowers  Yeah, so, construction is definitely taking longer, all the contractors are built up and the prices have gone up. Two years ago, we could build a standalone ADU for about 100, a basic mount of 150,000 and now, I haven’t seen anything for a while that’s less than 300. I know, I know, I know the cost. But here’s what’s really interesting. And it starts with the question, why do we build with wood and cement? Why? Because it’s just we’ve always done it. And so now we have these really interesting prefab manufacturers coming out with recycled materials that are fireproof up to 500 degrees, and really beautiful designs. One of the designs I’m looking at is through a company called C&N Modular and I’m actually looking at bringing it out to my Florida property. But a two bedroom one bath is $185,000.
Aaron Norris  Wow.
Meredith Stowers  I know it has no foundation and it can be set up in four days. It has no wood to it. It’s all recycled material that’s fireproof up to 500 degrees. And then so when you get it out there it’s up on posts, so does not even have to be even land and you need to connect the utilities so your main costs are the utilities.
Aaron Norris  Let’s talk about that a little bit because hardly on the process manufactured homes have always been allowed. But we were told that lenders do not like mixed inventory if you had a primary that was stick built and a second the ADU was a manufactured home. A lot of lenders would just ignore the ADU. They’re like no, we don’t like Title 24 and Title 25 existing on the same lot.
Meredith Stowers  Yeah, so now Fanny’s rules are you can have a manufactured ADU and they have clarified with the lenders we will finance those, right now my company for example is not allowing that because there’s a 12 month backlog on manufactured homes but, and they don’t want to carry it on their warehouse for that long. But overall I met, I’m actually have come around the manufactured homes are pretty darn amazing if you can get the turn times down. I’ve even seen in a homeowner’s associations where you have to be matching matching. People will come in and plop down a double wide 1200 square foot and then even though structurally they don’t need it they will stucco and roof tile it to match the primary house and you really can’t tell much of a difference. It is amazing.
Aaron Norris  We asked the in NAHB when they were on the radio show like why haven’t we heard more about you know this plant manufacturing because it’s green it’s in more robotics and the quality of some manufactured homes can actually be better than stick built because we have a supply, a shortage of skilled labor with…
Meredith Stowers  Yes, yes, an earthquake resonance. That’s important.
Aaron Norris  Now you, you separated manufacturing from modular. Modular for the state of California does modular it falls under Title 24 because it’s attached to the ground the right way. Like, how does that work?
Meredith Stowers  So, modular the way that in mortgage jargon we define it is, is it, is it permitted by the local housing agency? That’s the key, oftentimes, modular can, they’re, they’re meant predominantly manufactured in a factory and then brought to the site. In most cases, it’s, we call it panelized modular. So, this is where you build an entire wall, and they physically walk the wall onto the property. Yeah, but there’s other places like a Bodu and digs where they build the entire stick, build house in the factory, and physically prop it, pump it right onto the thing. And that would keeps the contractors walking around your yard for a year.
Aaron Norris  Right, it stops the NIMBYs from even knowing what’s happening. It’s ’cause it’s too late, if there’s so many benefits I can think of.
Meredith Stowers  Yeah, the really exciting thing now is the 3d printed homes, and I, there’s an entire subdivision of 3d printed homes. And those can be built as quickly as one day.
Aaron Norris  But that’s the, that’s the structure itself. I gotta be honest, I’m not, I’m not that excited. Because I see that happen in Florida all the time. They put the blocks up in one day. I’m like, you still have all the finish work and you’re gonna have to specialty trades. Like, I think I’m more excited about, like, in my, like, facilities, the walpack stuff, I think that might be more interesting. I do however, the Mighty Buildings that do the 3d printed homes. What they’re doing is they’re taking a very ship, how they build cruise ships, using modular and so they’re bringing people who do bathrooms and the bathroom people just drop off and they play in play. I, I love that the modular sort of married with a 3d printing, I think it’s valuable. But the, I don’t know ICON. It’ll be interesting to see. Let’s, let’s see what ICON does with Lenior out in Austin to see if it really cuts down on time, because I’m not sure yet.
Meredith Stowers  Yeah. I know, I will be too but it’s it’s a good movement to force costs down and have better quality stuff out there for sure.
Aaron Norris  That’s true. Yeah. Yeah. Well, I can’t wait to see if that’s one of the benefits. So, the appraisals,okay, the like BOXABL and some of these ones that fold out. You don’t care as long as…
Meredith Stowers  No we do. A lot of the BOXABL guys are kind of mad at me. Because it, you know, we do ADU loans, there’s been a blurring of tiny homes or tiny ADUs and tiny homes on wheels. And that’s an important distinction. And you nailed it earlier, the tiny homes on wheels are permitted by the DMV, just like an RV. I can’t finance that. I have to finance something that is permitted. It must be permitted. And, and it’s fixed on to a local foundation. So the BOXABL guys do not have the housing installation to be permissible as a local house. Now, in San Diego, it doesn’t necessarily matter so much but in colder areas, you know, do you really want grandma in a cold box? And I mean, that’s the kind of question you actually have to ask.
Aaron Norris Interesting, so in that case, it’s the insulation.
Meredith Stowers  Yes. And it’s, it’s insulation. Some of the other ones. It’s fireproofing. Yeah. So, there’s a whole bunch of questions. The bottom line is if it cannot be passed local permit inspections. I can’t finance it. Now there’s plenty of people who will happily because it’s so inexpensive plot that on the property, unpermitted, and there’s tons of that going on, but I can’t finance that, unless it’s just cash out and here’s your money.
Aaron Norris  So, again, this is not a good spray and pray approach. Maybe have a conversation with you before we buy a property?
Meredith Stowers  Yes, yes. And by the way, I mean tiny home villages and camps are one of the hottest trends right now. And that’s another thing I was looking on my lot for Florida is having these cute little air streams and you know, all kinds of stuff that I know, I know that you…
Aaron Norris  I only laugh because it’s peak season here in Florida as we’re taping this.
Meredith Stowers  Yeah.
Aaron Norris  I try to stay in different parts of where we’re building and stuff to just really get the local flavor. Somebody was trying to rent out an Airstream for 350 a night. It’s such a racket.
Meredith Stowers  It is such a racket that people especially the millennials think it’s as cute as can be. Personally I like my hotels. Yeah, and then, and then people can also track in their own, you know, things. So, that’s a, that’s a big wander less movement that really happened in COVID. Like, I swear, half of San Francisco, just left town bought a tiny home and is traveling around the country. Rents went down in San Francisco 20%. Yeah, it was really bad. Yeah. And we actually flew out to Nashville. And there were a ton of millennials working from the hotel and just traveling around the country during COVID.
Aaron Norris  It’s so weird, different markets. Even in California, like I, we did not have that experience in the Inland Empire.
Meredith Stowers  Right.
Aaron Norris  Rents have been raging.
Meredith Stowers  Right.
Aaron Norris  Because we have a lot of people from the coasts and like, I don’t have to live in these expensive markets. And so they’re coming Inland.
Meredith Stowers  Yes.
Aaron Norris  It’s uncomfortable, actually how much prices have increased, increase both equity and rent, so.
Meredith Stowers  Yeah.
Aaron Norris  Do you have? Do you have a list of manufacturers that you trust and you work with? And they’re already almost pre approved if you will?
Meredith Stowers  I do. I do. You can see most of those on the aducoalition.org. That’s kind of a curated group. I’m on that board. And that’s a pretty curious group of people. But there’s more we do, when we work with them, we like work with licensed GCs. But I am a big fan of going with somebody who has done ADUs over and over again. Because there are, they are unique roles and you don’t want to be somebody’s guinea pig.
Aaron Norris  Does design matter to you, if somebody just built something or is planning on building something terrible, or you’re like I’m not interested by it.
Meredith Stowers  I mean, it again, it’s got to be permittable, but design does matter in quite a bit in cost. So, for example, if you when you hire an architect, sometimes we see some crazy roof lines that don’t make sense. It’s really important to have one wet wall and because that will save you a ton of cost. And another thing we’re looking at is oftentimes the one bedroom units. So, if you have if you can build a two bedroom two bath unit, you can either rent that for say 2500, 3,000 or you can once it’s a permits approved, split them off, add a little kitchenette. Now, you’ve got two one bedrooms that each rent for 2000 each or more. And so sometimes the multi one bedrooms make all the sense in the world. In the College areas where rents, they rent by the room, they don’t rent to groups of kids anymore. So 1500 to 1800 per room. I’m looking at people building basically micro rooms, six micro rooms and a 12 bedroom, in a 1200 square foot ADU with one bedroom in one tiny kitchenette. Because really when you are in college, did you really use the kitchen? No, you didn’t. Right? So, why spend all that space? So, that’s so design really matters. And it actually starts with looking, where’s your top rental income going to come from?
Aaron Norris  Interesting. Yeah, I don’t know why California hasn’t like New York after living in New York, we went to school there. They have a lot of different types of housing, where they have the dormitory style for adults as well, where you’re sharing a bathroom with the entire floor. We just want that kind of, we just don’t have a good housing mix. It’s just impossible. I feel really bad for you know, how are kids gonna get in? It’s a little nuts.
Meredith Stowers  Yeah, we just got to be more flexible. Yeah.
Aaron Norris  When it comes to supply chain disruption. And price increases. I mean, this is coming out of the woodwork and you’ve already done alone. How are the owners typically dealing with that?
Meredith Stowers  So, when we had that first rule set of inflation so a my renovation loans by loan guidelines are required to have a 10% buffer. And that’s really kind of been the magic number we have I’ve yet to have a loan, surpass that even in high inflationary times. So, if you’re doing a cash out or using other financing, I do recommend find out if a contractor is added a buffer because sometimes they quietly do. But make sure you add a 10% buffer in case of cost overruns.
Aaron Norris  That’s a great idea. I mean with the appliances and windows and certain features. It’s just, it’s taking forever to I just I’m trying to think of what else I need to add On the ad use, let’s talk about the Oh, the the nuts and bolts of the loan? Do you leave the first in place and do a second? That’s the construction loan? Are you refinancing the entire property?
Meredith Stowers  No, my construction loans are a refinance of the first mortgage because to get a low interest rate, you have to secure the primary property. We don’t even allow subordination of seconds or or solar loans or anything else nothing. The only lien on the property can be the renovation loan. Your following option I know that there’s some lenders out there with HELOC products, but those products are like nine 10%. For that potential. So um, I don’t know.
Aaron Norris  My best friend is actually thinking he’s up in Santa Clarita, it’s easy for him to build something out than it is to look for new property. It’s just so nuts out there. And he’s looking at adding square footage to his property. So, that was huge refinance and then pull the money out. But most lender debt he’s talking to there’s a maximum of 100,000. So, you can do more, obviously.
Meredith Stowers  Yeah, I can do a lot more. I’m absolutely I have a, my maximum is a 80% loan to value on the cash out. And your first mortgage is always going to be your lowest rate and you get the tax deductibility in a far better way than you do with a HELOC. Most people don’t know that the HELOC are no longer largely tax deductible, so.
Aaron Norris  Interesting. Okay. And then once the the accessory dwelling unit gets a CO, it just, it just is a regular loan.
Meredith Stowers  Yeah. Yeah, unless you have multiple ADUs on it, then it’s going to be a non-QM meeting non traditional. So, you might have a quarter point higher big deal. Fannie Mae is pulling out of that market. But I have some great non QM lender banks coming into the market.
Aaron Norris  What’s the rate right now for owner occupants who are doing these?
Meredith Stowers  Owner occupants. So, we treat them as a cash out loan, some lenders will really put a premium price on that. We don’t, we treat them equivalent to a cash out. So, rates are up right now. So, cash outs on an owner occupied is like 4.4, something like that at par. But whatever, cash out refinances right now that’s what we’re doing as a renovation loan.
Aaron Norris  How much money should they expect to have in the deal? To make it work?
Meredith Stowers  The main issue is the upfront costs. Great question. So, you’re caught, I typically see permit designs, being anywhere from five grand to 20 grand, even as high as 40 grand. And that’s where it’s super important. There are so many floor plans on the marketplace that it makes sense, and ADUs are mostly boxes anyway. So, use one of the floor plans, talk to that architect and have them modify it to your particular property. Some of the ADU builders out there have in house draftsman. Ironically, some working abroad a bunch of Ukrainians, to a large degree, who are architecturally modifying those designs in a very inexpensive way. So, you can save a fortune on that. And then you submit for permits. And your usually cost for submitting is initially is not that much, maybe a couple 100, couple 1000 is when the permits, get back and are done, that you you’re probably going to need to pay more, you’re in need to pay, depending on the location is anywhere between $2,000 to $20,000. Yeah, so a lot some places where that really don’t want at us like Chula Vista, California, Coronado, some places up north in the Bay Area. They’re charging large impact fees for schools and other things. Whereas pro housing a cities like San Diego, Pasadena are waiving those impact fees. It makes a big difference where you buy.
Aaron Norris  Now, if you build 750 square feet or smaller, they can’t charge that right.
Meredith Stowers  Yeah, maybe?
Aaron Norris  They’re not supposed to.
Meredith Stowers  They’re not supposed to. But yeah…
Aaron Norris  I think several examples of that where they’re being told something that’s not true when you go to local building departments, whether they know or they don’t know they’re telling you, I don’t know.
Meredith Stowers  And that’s why it really matters what contractor you’re working with because will pay 12,000 for that, sure. Or a guy says it will very sweetly actually state laws.
Aaron Norris  Hey back tech would mean a lot of money.
Meredith Stowers  Yes.
Aaron Norris  So, they need to be prepared to be out of pocket through the permitting process pretty much.
Meredith Stowers  Yeah, absolutely. I that’s what I would prepare. We’re working on some grant programs for that for owner occupied with the states and housing groups and CALhfa, but yeah.
Aaron Norris  Okay, I need to get more plugged in with that because I think there’s a bridge to I’m teaching at the California Mortgage Association later this month, and specifically talking about ADUs and SB 9, and we need to get more involved and create programs for this because…
Meredith Stowers  I have a fabulous idea for you. We’ll talk later.
Aaron Norris  Can’t wait. Tell me about the ADU Coalition really fast.
Meredith Stowers  Yeah, so, and actually it’s morphed into the Casita Coalition. So, the Casita Coalition is has been predominantly a policy based group and it’s been merging with the ADU Coalition, which has been really the industry professionals. So, you’re gonna see around California in April, April 8, and 9th and 10th. We’re hosting homeowner fairs in the Bay Area, we’re probably going to do San Diego in October and Los Angeles sometime this summer. And so and it’s really trying to have a curated group of contractors and professionals and walk through these, these processes. It’s really about sharing homeowner information, education and resources. But it’s also best practices within the industry, so that we can keep our quality of our pricing down.
Aaron Norris  SB 9 we’ve talked about a little little bit, I feel like it’s gonna go the way of accessory dwelling units, if it doesn’t have a lot of maybe backlash, where it’ll be open for investors. Are you excited about it? What do you, what do you think is on the horizon for that?
Meredith Stowers  Yeah, I’m super excited about that. I think it’s the only place where pretty much for real estate agents are going to get listings anymore. And so getting good at construction loans is going to be really important. And having that construction mindset where, you know, when you are building you have to be collaborative, because there are obstacles. And the question isn’t, oh, my gosh, what am I going to do? It’s probably fix this, what’s the best approach? So, I do think that that’s going to be a huge new opportunity in California and, and looking for those opportunities. If you’re out wholesaling, or door knocking on properties, I’m telling you, the number one thing you can do is talk to little ladies who have a huge yard, they own their home and full and they could use the extra cash for retirement, split their lot and build on it. Absolutely. That, that’s a great source.
Aaron Norris  I always think of in PropertyRadar, different ways to search. You could certainly search that by how long we’ve owned the property, but you can also search by how much to pay in property tax. If it’s really low, you know that they’ve locked it a long time ago. But you can also search by demographics and size of the lot whatnot, there’s ways to stack it to easily find it. Lots of different opportunities. So, Fannie and Freddie are out when it comes to commercial ADUs?
Meredith Stowers  For, no just multi families, but on single family homes. They’re good to go. I see about a 20% cap rate on single when you add an ADU and JADU on owner occupied. Investor homes can only add one ADUs you’re still getting great cash flow. So yeah.
Aaron Norris  Yeah, I’ve seen some really interesting commercial projects where they’re doing the under parking converting those because they wanted to get rid of those anyway, at least the city of Los Angeles did really focused on getting rid of those and turning those into apartments and sort of reconfiguring where parking is and whatnot. An eight, a Fourplex for the added above garrage units and built the garages that they had never had before. So, they had an Eightplex it just, there’s multifamily opportunity as well. What are the rates that you’re seeing for multifamily?
Meredith Stowers  Huge, to be honest, first, something a little bit on multifamily. And this is where, you know, doing it under you someone like you would make a lot of sense, or we’ve got some fix and flip loans. At above four units you’re definitely going commercial and commercial rates are ultimately at about 5.5%. But honestly, who cares because the cash flow is just so good.
Aaron Norris  But for the sake of permitting, well, it’s four units plus four ADUs , but for the regular financing worlds, they’re seeing that as an eight unit.
Meredith Stowers 2Yes, they’re seeing that as an eight unit. It’s the consensus seems to be coming to, above all, no more than four total units on a property to keep it residential.
Aaron Norris  Interesting. Okay. I did not know that. I thought if you had a Fourplex and you built for ADUs, it’s still qualified for one to four. No, it’s like that’s fallen into commercial. That’s good to know. Okay.
Meredith Stowers  I know but the eightplexes are worth it. That, that is by far you nailed it. It is by far I think we last calculated that at a 36% cap rate, even with a 5.5% interest rate. So, I my biggest message to people is stop stressing about your stupid interest rates. Look at the cash flow. Look at the cash flow. So, yeah.
Aaron Norris  Do you see this working in any areas or any cities that you just love working with that you’d like to highlight?
Meredith Stowers  Yeah, City of San Diego. Absolutely no question with their adu bonus program. Rumor has it that the city of San Diego or city of LA is going to adopt that city of LA has an interesting program too with something called in an era of COVID rental forbearance. That’s always an issue. And so they have something called the ADU accelerator program where they will introduce you to three seniors little ladies to live in the property in the city pays your rent, but you don’t have to leave the property. So, it’s guaranteed rental income, you know, at subsidized rates. And you got a nice quiet, you know, I mean, I love that, love that. Yeah, San Jose has is super pro ADU although the prices continue to get high, but you know, the Bay Area and then the West Bay Oakland is big, big ADU area, those areas have huge lots. And they definitely need some improvement. Having said that I get concerned about the quality of the primary homes, because those properties were not built particularly well over there.
Aaron Norris  Interesting. Okay. Well, well, when I traveled to the northeast, I saw something about accessory dwelling units. I think a lot of different states are watching so, so it was California, so it goes to the rest of the country. So, we’ll see. Maybe you’ll be very busy doing loans nationwide.
Meredith Stowers  I hope so. Thanks. I really appreciate it.
Aaron Norris  Where can we find you if we would like some more information
Meredith Stowers  Yeah, ADUloans.net I’m just about to launch my 2022 ADU estimator. I have a slightly outdated one up there. But it gives you a sense of costs and return on investment, monthly payments, everything. And we’ve got a ton of great videos here too.
Aaron Norris  You’re just turning homeowners and the investor minded families. This is great. Pretty soon they’re all gonna be pro, pro investor. I like it. We’re not going to be the sharks anymore.
Meredith Stowers  Absolutely. Well, thanks for all you do Aaron appreciate it.
Aaron Norris  Ofcourse and we’ll make sure to put all the links in the show notes so people can come and visit and thank you so much. This is a really important update because it was so different from two years ago. All right, thank you.
Narrator  For more information on hard money, loans and upcoming events with The Norris Group, check out thenorrisgroup.com. For information on passive investing with trust deeds, visit tngtrustdeeds.com.
Aaron Norris  The Norris Group originates and services loans in California and Florida under California DRE License 01219911, Florida Mortgage Lender License 1577, and NMLS License 1623669. For more information on hard money lending, go www.thenorrisgroup.com and click the Hard Money tab.