For one woman entrepreneur, youth has its advantages. Caroline Danehy, cofounder and chief brand officer of Fair Harbor Clothing, and her brother started the company in 2014 when she was in high school. She had passion, youthful exuberance, agility, curiosity, grit, a willingness to be coached, and an attitude to do whatever it takes.

Fair Harbor has gone from selling board shorts made from recycled plastic bottles from the family garage to becoming a sustainable lifestyle brand in less than a decade. Flagship stores have opened in Soho and Palm Beach Gardens. The brand is sold in Nordstrom, Saks 5th Avenue, specialty stores, and online through its site and other sites.

Passion For Sustainability Becomes A Lifestyle Brand

Danehy spent summers fishing, swimming, and surfing in Fair Harbor with her family. Fair Harbor is a small summer community on Fire Island, off the southern coast of Long Island, New York.

“It’s a magical place with no cars and a simple, minimalist living,” Danehy said. The life there inspired the siblings to form a company that transforms harmful plastic waste into comfortable beachwear.

“We started to notice more and more plastic waste washed up onto the shores,” sighed Danehy. She became interested in sustainability, insisting that her family turn off lights, bring reusable bags to the grocery store before it was mandated, and organize park cleanups.

At the same time, Danehy developed a strong love for fashion. She wrote a fashion blog from middle through high school, “Cakes, Cookies, and Cardigans,” which focused on consignment and vintage shopping. It was a way for her to make old fashion new again by repurposing clothing.

In 2014, Danehy’s older brother, Jake, a junior in college and a geology major, was learning about plastic waste and its impact on the environment, particularly oceans. Danehy was a senior in high school. He told his sister, “We should start something that matters.”

They began conceptualizing the mitigation of single-use plastics by creating awesome products people love wearing. The first product was a pair of board shorts made from post-consumer plastic bottles turned into polyester. These shorts are worn in a wide range of activities, such as surfing, bodysurfing, diving, swimming, and sailing.

They entered a Shark Tank-like pitch competition—TIA Entrepreneur Showcase—at Colgate University, where Jake was a student. Judges included Jessica Alba, MC Hammer, Neil Blumenthal, and Jennifer Hyman. They were awarded $20,000 plus mentorship.

The siblings traveled up and down the East Coast doing trunk shows and fulfilling orders from their parent’s garage.

Selling at trunk shows gave the brother-sister team clear insight into customers’ values and how to position the brand. They were scrappy, determined to succeed, and able to figure things out. Still, naysayers said they were too young to start a business and needed more experience. Boy, did the siblings prove them wrong!

Since then, Fair Harbor moved from selling at trunk shows to e-commerce on their site and others, wholesale (including Nordstrom and Saks 5th Avenue), and opening two retail stores. “We’ve revolutionized the [board shorts] category by replacing mesh lining with our ultra soft breeze knit liner [that is chafless],” stated Danehy.

They expanded from board shorts to other men’s beachwear and have a line of women’s and kids’ wear. Fair Harbor has recycled over 30 million plastic bottles by turning them into our apparel. “We closed our first institutional round of funding,” said Danehy. The dollar amount was not disclosed.

The Benefits Of Mentors And Advisors

Early-stage founders—especially inexperienced ones—can save time, money, and aggravation by finding mentors and advisors with knowledge, expertise, and connections. Based on their experience, mentors provide guidance and advice that help entrepreneurs avoid mistakes and shorten the time to success.

As young entrepreneurs, the brother-sister cofounders knew they had much to learn. “My dad always taught us to surround ourselves with people who have more experience and know more than we do,” said Danehy.

They took advantage of the mentorship provided through the TIA competition. Since then, Danehy has learned to look for people she has a natural connection with from various industries and who have complementary skills to hers. She meets them everywhere, including industry events.

To Avoid Burnout, Schedule Downtime

“What Jake and I lack in experience, we make up for in grit, determination, flexibility, and staying agile,” said Danehy. “But I couldn’t imagine a better time to start a business than my late teens and Jake’s early 20s when you have a fresh perspective and an incredible focus to ensure it works.”

Still, as a young founder, Danehy finds it challenging to maintain a work-life balance. She puts her entire being into Fair Harbor. Over the past nine years, she has worked hard, kept her head down, pushed forward, staying very focused on product, customer, and brand.

Over time, Danehy realized that having a perfect work-life balance isn’t the goal. It’s anxiety provoking. If you concentrate on what you don’t have, you will never, ever have enough, so she is grateful for the moments of calm she does have.

Whether it’s cooking on Tuesday nights with her boyfriend, going vintage shopping on the weekend, spending time with her family, or meditating, she needs outlets to take a breath. “I need to put it in my calendar; otherwise, life gets away from me,” said Danehy.

What fuels your entrepreneurial passion?

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Large investors expanding their affordable housing portfolios has recently become a notable trend in the real estate market. Nuveen, the investment management division of the Teachers Insurance and Annuity Association of America (TIAA), made headlines with its acquisition of a substantial 12,000-unit affordable housing portfolio, predominantly located in the mid-Atlantic region, with a significant concentration in New York City. 

Nuveen, which manages $1.1 trillion in assets, is now managing a $6.4 billion portfolio of affordable housing. Prior to this deal, Goldman Sachs, alongside the Michaels Organization and the Community Development Trust, purchased $1.2 billion worth of affordable housing across the United States earlier this year. These investments reflect a growing trend among large investors who recognize the advantages of affordable housing investment. 

In this article, we delve into the top four reasons driving this expansion and explain why smaller investors should consider participating in this resilient market. We’ll also talk about how you can start investing in affordable housing to make a significant profit while making a real difference in communities.

1. Increasing Nationwide Demand

Supply and demand are a crucial factor in successful real estate investing. Whether you are fixing and flipping houses, wholesaling, or building a rental portfolio, making a profit will be challenging if there isn’t demand for your product. If there is demand, your vacancy rate will stay low, and your rents will remain strong and consistently increase. 

Demand for affordable housing in the United States has reached critical levels and is continuing to rise. The National Low Income Housing Coalition estimates that the nation faces a shortage of 7.3 million rental homes that are both affordable and available to extremely low-income renters. This scarcity means that for every 100 households in this income bracket, there are only 33 affordable rental homes. 

Such shortages persist across all states and major metropolitan areas. But it’s not just extremely low-income renters who need affordable housing. To put things into perspective, Nuveen’s research reveals that nearly half of all U.S. renters are considered rent-burdened, allocating more than 30% of their income toward rent payments. Even more concerning is the fact that one in four of these rent-burdened individuals are severely rent-burdened, spending over 50% of their income on rent.

Despite ongoing efforts at the local, state, and federal levels, the need for affordable housing continues to intensify nationwide. This mounting demand creates an attractive investment opportunity for those looking to enter the affordable housing market. 

2. Favorable Yield Stability Throughout the Entire Economic Cycle—Including Recession

Large investors are drawn to affordable housing not only due to its social impact but also because it offers favorable yield stability, even in challenging economic climates—including recession. 

Nuveen’s research showcases the affordable housing sector’s resilience, illustrating that affordable housing investments, compared to traditional real estate sectors, including market-rate apartments, industrial, office, and retail, have generally delivered higher yields throughout the last 20 years. This long-term track record indicates that affordable housing investments can provide investors with attractive returns and stability throughout an entire economic cycle, even during downturns.

According to Nuveen’s report, an additional favorable aspect of affordable housing is its tendency to avoid downward rent adjustments during a recession, unlike market-rate apartments. This characteristic highlights the durability of cash flow in this sector compared to other forms of housing. 

Simultaneously, the scarcity of affordable housing options and the overwhelming demand for them contribute to the sector’s robust performance. Nuveen notes that properties designated for lower-income renters exhibit higher occupancy rates and experience less volatility compared to traditional apartments. This phenomenon can be attributed to the persistent undersupply of affordable housing relative to the substantial demand, creating a stable, consistent pool of potential tenants for these properties. 

By diversifying their portfolios with affordable housing assets, investors can potentially mitigate risk while generating consistent income streams.

3. Backed by Government Subsidies 

One of the significant advantages of investing in affordable housing that is attracting institutional investors is the access to government subsidies, such as Section 8 vouchers. These subsidies provide property owners with stable, predictable rent collections since the government makes direct payments to owners on behalf of eligible tenants. Consequently, affordable housing investments benefit from reduced risk and enhanced cash flow reliability. 

The availability of government support adds a layer of security that makes affordable housing investments even more attractive to investors. My personal experience with single-family affordable housing investments has been that Section 8 voucher rent tends to trend above market-rate rents. 

4. Alignment With Public and Private Social Impact Investing Goals

It is crucial to emphasize that the expansion of affordable housing portfolios aligns with paramount societal and policy objectives. Governments at all levels—local, state, and federal—have acknowledged the pressing need to tackle the affordable housing crisis and implemented initiatives to incentivize investments in this sector. 

This does not mean all the red tape has been lifted when it comes to developing affordable housing or accepting Section 8 voucher tenants. Affordable housing investors will have to overcome challenges, including public and private resistance. By engaging in this market, investors not only have the potential for financial gains, including reliable, stable income, appreciation, and tax advantages but also play a pivotal role in addressing the vital housing needs of communities.

Institutional investors have been expanding their affordable housing portfolios to make a social impact investment that generates economic returns but also drives positive change and improves the well-being of individuals and families in need.

Why Smaller Investors Should Invest in Affordable Housing 

Institutional investors expanding their affordable housing portfolios is a testament to the opportunities present in the sector. The combination of intensifying nationwide demand, favorable yield stability, and government subsidies certainly creates a compelling investment proposition. 

However, it’s not just institutional investors who can benefit from affordable housing investments. Smaller investors should take note and consider following suit for several reasons, but they should also fully understand the risk that comes along with affordable housing investments and the factors that are crucial to success in the sector. 

As with any investment, with great reward comes great risk. Luckily, however, the risk can be mitigated. 

First, demand for affordable housing extends far beyond what major institutional investors are capable of filling. The shortage of affordable rentals and homes affects communities all over the country, of all sizes, from urban cities to suburban and rural areas. Both multifamily and single-family rentals and homes are desperately needed. 

Second, the potential for attractive yields and stability applies to investors of all sizes. Nuveen’s research highlights the consistent outperformance of affordable housing investments compared to other asset classes. 

Smaller investors can diversify their portfolios and access these benefits by actively engaging in direct investments or passively investing in private real estate investment funds that focus on affordable housing. This allows them to tap into the sector’s potential while leveraging the expertise and resources of established market players.

Third, government support and subsidies are not exclusively available to institutional investors. Smaller investors can also benefit from programs such as Section 8 vouchers and other local and state initiatives aimed at increasing the availability of affordable housing. As discussed, these mechanisms provide stability, reduce risk, and ensure reliable rental income, making affordable housing investments an appealing option for investors of varying scales.

Moreover, the current political landscape and public sentiment favor affordable housing initiatives from everyone, from institutions to private investors and nonprofits. Governments at all levels are actively seeking public-private partnerships to address the affordable housing crisis. By participating in this market, smaller investors can align themselves with government priorities, potentially accessing additional incentives, grants, and deal flow.

An Action Plan

It’s important for smaller investors to conduct thorough due diligence and seek guidance from experienced investors when venturing into the affordable housing market. Understanding local market dynamics, evaluating potential investment opportunities, and complying with regulations are crucial steps to success. Collaborating with experienced investors, contractors, property managers, and housing organizations can provide valuable insights and mitigate risks associated with entering the affordable housing market. 

One great thing about investing in affordable housing is there is a low financial barrier to entry—you don’t need a ton of capital to start investing in affordable housing. 

However, on the flip side, there is a very high barrier to success when investing in affordable housing. Many times, these homes need to be fully redeveloped or heavily renovated. You will also need to know how to underwrite the renovation cost properly and manage the construction budget, time frame, and quality to ensure you stay in line with your projections and time frame and mitigate the future risk created from shoddy renovations. 

It is also crucial you perform strict tenant screening practices. It is a major misconception that all Section 8 tenants will trash your property. This is certainly not the case, and strict tenant screening can certainly help lower the chances of this happening. 

Another crucial aspect of affordable housing investment success is aggressive, professional property management. Whether you handle the property management yourself or work with a third party, they need to be proactive and handle everything professionally. I can expand on best practices in the construction and property management of affordable housing in another article.    

The expansion of affordable housing portfolios by large investors signals the immense potential of this market. The combination of intensifying demand, favorable recession-resilient yields, and government support makes affordable housing investments an appealing option for both large and smaller investors alike. By capitalizing on this trend, smaller investors can profit with a purpose by making a positive contribution to addressing the housing crisis while generating favorable financial returns. With the right research, partnerships, management practices, and support, smaller investors can navigate this market and unlock the opportunities that affordable housing investments present.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

CNBC’s Diana Olick joins ‘The Exchange’ to discuss why rent rates are cooling, a rise in rental vacancies, and a record number of rental units under construction.

With pandemic government stimulus money and grant opportunities winding down, what’s a woman-owned business to do? Know your financing options!

A new option increases the likelihood of young businesses or businesses whose owners have low or no credit scores getting financing. The Equitable Access Fund relies on proven underwriting practices—paired with technical assistance—that have worked for Small Business Administration (SBA) loan programs and Community Development Financial Institutions (CDFIs) but are now applied to small business credit cards.

By subsidizing the additional costs and risks with philanthropic capital, mission-driven lenders—such as The Equitable Access Fund and its financing-provider partners—can meet the needs of underserved women entrepreneurs, especially women of color, with small business credit cards.

Leveraging Philanthropic Capital To Provide Credit To Women Entrepreneurs

Hello Alice, in partnership with the Global Entrepreneurship Network (GEN)—the fund manager—launched a $70 million fund backed by Wells Fargo to improve access to credit and capital for underserved entrepreneurs, including women. Other partners include the Kauffman Foundation and Mastercard.

“If you look at just the BIPOC small business owner community, there’s $40 billion in unmet demand for financing, based on how much they apply for and don’t receive, [according to the Small Business Credit Survey conducted by the Federal Reserve Banks],” said Matt Brewster, Capital Access Strategy for Hello Alice. “The unmet financing demand is three to four times higher for BIPOC-owned small businesses than white-owned small businesses.” The number for women-owned businesses is not available.

The Equitable Access Fund is designed to serve women-owned businesses and other high-potential small businesses facing barriers to adequate financing. Underwriting standards are more flexible and consider the entrepreneurs’ short- and long-term plans, their track record of meeting stated commitments and objectives, and their completion of learning modules on the Hello Alice platform. The fund will support access to the Hello Alice Small Business Mastercard and select loan products from Hello Alice Financing Marketplace partners. First National Bank of Omaha (FNBO) is Hello Alice’s credit card issuer.

The fund uniquely uses philanthropic capital to unlock access to capital for small businesses. It accomplishes this by providing “credit enhancements” to partners providing financing offering the small business credit card.

Credit enhancement includes loan guarantees, loan loss reserves, and cash collateral deposits to financing partners. These give financing institutions some loss protection on their deals and enable them to increase their risk tolerance reasonably. Increased risk tolerance helps unlock credit access for underserved, high-potential, credit-challenged or early-stage small business owners.

“A general rule of thumb is that you can get at least 10x leverage from a guarantee, unlocking credit access greater than the guarantee amount or from borrowers subsequently accessing other capital that they wouldn’t have been able to otherwise,” said Brewster.

“[Through] research that the Wells Fargo Foundation collaborated on with the Nasdaq Entrepreneurial Center (NEC), we learned that undercapitalization happens because women-owned businesses tend to get valuated at 30% less than similarly situated male-owned businesses,” said Jenny Flores, head of Small Business Growth Philanthropy at Wells Fargo. “This means that women-owned businesses will receive less financing. This [disparity] is compounded for women of color because it increases the wealth gap and suppresses their ability to scale.”

How It Works

Hello Alice’s data finds only 25% of small business owners have applied for a business credit card, and 85% of those applications were denied due to low or no credit score. Yet, 90% of business owners without business credit believe getting a business card would be beneficial.

Based on what Wells Fargo has learned from its “Open for Business Fund”—a $420 million effort focused on serving diverse small businesses across the U.S.—and insights from Hello Alice’s customers, Wells Fargo calibrated exactly where the interventions can be made to increase the success ratio for high-potential entrepreneurs. These insights and Hello Alice’s technology enables this solution to scale.

Through financing-provider partners, such as FNBO, Stearns Bank, and CDFIs, such as ACCION, Opportunity Fund, and Certified Development Company (CDC), women entrepreneurs can apply for a small business credit card and are more likely to be approved because The Equitable Access Fund enables financing-provider partners to have more flexible underwriting criteria and entrepreneurs do not have to put up the security.

It’s not just about the credit amount through the card. It’s about the additional credit, such as loans, that women-owned businesses can access once they have a track record of repayment. “We think the $70 million fund will unlock at least a billion in credit over the next five years,” said Brewster. It’s an innovative approach that Hello Alice hopes others will replicate.

As part of the program, entrepreneurs receive credit-building education and technical assistance through an assessment tool called the Business Health Score. The score gives an overview of a business’s financial health. It allows women entrepreneurs to make informed decisions about improving their financial performance. Financing partners use the score as an additional criterion in judging an applicant’s creditworthiness.

“To effectively meet the needs of women-owned businesses, particularly women of color (WOC), our financing models need to flex to ensure we meet entrepreneurs where they are,” said Flores. “In addition, when we pair capital with relevant education and mentorship, the success rate of women-owned businesses increases exponentially.” Hello Alice provides digital educational content and tools. Hello Alice Small Business Mastercard holders also get free 1-on-1 access to business coaches with expertise in strategy, finance, and sales and marketing.

How A Struggling Industry Benefits

“My greatest concern right now is women in the care economy,” said Elizabeth Gore, president and cofounder at Hello Alice. Women with small child- or elder-care companies had difficulty surviving the pandemic. Demand for their services declined sharply. If they reopened after lockdowns, they had to implement costly new safety protocols. Demand has returned, and there is a significant unmet need for services for affordable, high-quality care.

As small businesses, they were less likely to have cash reserves and more vulnerable to permanent closures. Rebuilding or starting new firms requires capital. Through The Equitable Access Fund’s financing partners, small child- or elder-care companies are more likely to get credit.

How are you building your credit score?

The tiny homes market is predicted to grow by a staggering $3.57 billion between 2022 and 2026, according to a Global Tiny Homes Market report. While trends like the off-grid and tiny house movement may have caused some to dismiss tiny houses, their popularity among investors is increasing for many reasons.

Tiny houses are more accessible to investors with limited capital because they offer a lower upfront investment than traditional houses. Also, the surge in demand for unique, affordable, and sustainable living spaces that use less energy and create less waste has given rise to a niche market for tiny houses as attractive rental options. 

Their potential as accessory dwelling units (ADUs) allows investors to generate additional income streams through long-term or short-term/vacation rentals. You need to know several factors about the costs and potential returns of owning a tiny home as an investment property.

What Is a Tiny House?

A tiny house is a small, compact dwelling ranging in average size from 100 to 400 square feet. Tiny homes are designed to maximize functionality and efficiency in less space while providing a cozy and comfortable living environment.

The average price of a tiny house is around $300 per square foot, while a traditional home is about $150 per square foot. But whether you build or buy, a tiny home’s overall cost is lower than a full-sized home, depending on the add-ons you choose to include. Investors are increasingly drawn to tiny houses as ADUs, which can serve as rental properties and guest houses.

Tiny Home Costs: Building vs. Buying

Two main options for tiny house costs are constructing a custom build or purchasing a pre-built unit. Let’s compare the pros and cons of each to help you decide which is a good investment for you.

Constructing a custom build tiny house

Building a tiny home from scratch gives you more control to design a custom living space that meets your specific needs for lower costs than a pre-built one. However, building a tiny house requires careful planning and a significant time commitment. The cost of building materials, labor, and permits can add up, typically ranging from $20,000 to $150,000, depending on the size, quality, and location.

If you don’t want to start from scratch, you can buy a tiny house shell with an unfinished interior for around $17,000 to $37,000. For a separate cost, you can add plumbing and electrical power. There are also tiny home kits that cost under $10,000, with blueprints, a trailer to build it on, and a required supply list. 

If you have construction experience, this may be an ideal solution. Shipping containers are another viable option. They cost around $10,000 to $35,000 on average, with larger homes costing up to $175,000.

Purchasing a pre-built or pre-owned tiny home

Buying a pre-built tiny home offers the convenience of not dealing with the building process and quicker availability for booking rentals. Prices for pre-built tiny homes can vary greatly, starting from around $30,000 and going up to $150,000 or more for high-end models. 

You can buy a pre-built tiny house from builders like the Tumbleweed Tiny House Company, which offers a wide range of certified green styles with flexible payment plans and 3D virtual tours. While it may seem more expensive upfront, buying a pre-built tiny house can save you time, effort, and potential construction nightmares that can cost extra money during the building process.

You can also buy a pre-owned tiny house for around $30,000. Although you save money upfront, you sacrifice the ability to customize the space to your needs without additional expenses. You can find tiny homes for sale in your region by searching online for local and national listings on sites like tinyhomebuilders.com.

Other factors impacting tiny house costs

Many other factors may affect the overall cost of your tiny house. These include:

• The size of the space
• The add-ons that are included
• The building materials used
• Building permit fees in your region
• Utility access
• Built on wheels or a foundation

Remember that owners of tiny houses built on wheels don’t pay property taxes. Although you’ll avoid the tax for the house cost, you’ll have to pay for a place to place it because of zoning laws. You cannot park it on a friend’s or family member’s property for free.

Real estate taxes may apply if you buy land to put it on, and you’ll need to consider the down payment and interest rate for any financing you get, such as a land loan. Because of a lack of collateral, these loans may be difficult to get without excellent credit and a solid building plan to show the lender. Most investors pay cash for tiny homes or get a personal loan because these small homes don’t qualify for a traditional mortgage like a conventional home.

Income Potential for Tiny Home Investors

The primary advantage of owning a tiny house as an investment property is the ability to generate multiple revenue streams. Research the best business model for determining if a tiny house is a good investment based on your target market and region.

For example, you can build a tiny house on your own property to offer renters or purchase a property to park many tiny houses on as long-term or short-term/vacation rentals. A vacation property investor can list their home on Airbnb to attract those looking to pay for a unique lifestyle experience. 

Many investors even purchase and develop land to rent space to tiny homeowners. Although, if you are a beginner tiny home investor, you may want to start with a single home and park it on your property to learn the ropes and prepare for making a larger investment in the future.

You can manage the tiny abode yourself or get a property management company to assist you. With the right strategy, you can create a steady stream of passive income from most tiny houses. Some investors even fix and flip tiny homes for a profit like traditional homes. The opportunities with most tiny homes are limitless because they’re mobile and smaller than a full-size home.

Calculating key metrics like net operating income (NOI), cash-on-cash returns, and return on investment (ROI) can help you evaluate the specific financial viability of your tiny house investment. 

Increasing the Value of Your Tiny House

You can maximize your tiny house investment’s rental income and resale value in many ways. First, optimize the layout and design to maximize the limited small spaces available. Clever storage solutions for people’s stuff, multifunctional furniture, and efficient use of loft space can enhance the comfort and appeal of tiny home living.

Incorporating sustainable features like solar panels, energy-efficient appliances, and water-saving fixtures can attract environmentally-conscious tenants and reduce utility costs. Create inviting outdoor areas with seating, landscaping, and amenities to increase the overall desirability of your tiny house. But be aware that tiny homes can depreciate in value if they’re over-customized. 

You can effectively market your tiny house by highlighting the unique selling points, such as proximity to local attractions, eco-friendly features, or a serene setting. Use online platforms, social media, and professional photography to showcase your property’s charm to gain the interest of potential tenants.

Challenges of Owning a Tiny House as an Investor

While tiny houses can be lucrative investment opportunities, some challenges exist.

• Zoning laws and legal restrictions can vary from one location to another. It’s crucial to research and make sure that your tiny house complies with local regulations. You’ll also need to get any necessary permits or approvals. Some areas have specific zoning requirements for tiny houses, such as being classified as ADUs or being located in designated communities.
• Financing options for tiny houses can be another hurdle. Traditional lenders may be less inclined to provide conventional mortgage loans for tiny house investments due to their unconventional nature and potential depreciation. However, you can explore alternative financing options like personal loans, contractor or building financing, RV loans, or home equity loans to fund your tiny home project.
• Maintenance and management can also pose challenges for tiny house investors. With limited space, regular upkeep and repairs become even more important. Whether through self-management or hiring a property manager, it’s important to factor in ongoing maintenance costs and ensure you have a plan for managing the property efficiently, like with a traditional home. Remember that tiny homes aren’t guaranteed to appreciate as much in value as a traditional house. 
• Consider the limitations of the tenant pool or target market. While tiny houses can appeal to certain demographics, such as young professionals or minimalistic individuals, they may not suit every type of renter. Understanding your target market and catering to their needs and preferences is key to maximizing occupancy rates and rental income. 

Is a Tiny House a Good Investment?

Investing in a tiny house can be profitable, but understanding the costs and potential returns is critical for making informed decisions. Whether you build or buy a tiny house, carefully evaluate the expenses and weigh them against the potential income streams.

As the tiny homes market grows, staying informed and adapting to changing trends and regulations, such as zoning restrictions, financing options, maintenance requirements, and target market limitations, is essential. By optimizing the layout, incorporating sustainable features, and effectively marketing your property, you can increase the value and rental income of your tiny house investment. 

However, it’s also important to know the tiny house cost challenges. So, if you’re considering a tiny house as an investment, take the time to evaluate your investment goals, assess the costs and potential returns, and determine if a tiny house aligns with your real estate investment strategy. With careful planning and smart decision-making, a tiny home can be a profitable addition to your investment portfolio.

Get the Best Funding

Quickly find and compare investor-friendly lenders who specialize in your unique investing strategy. It’s fast, free, and easier than ever!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

Fed Chair Jerome Powell answers questions from reporters after the central bank announced an additional 25 bps hike in July.

Succession planning can be one of the most important ways to protect the longevity of your business. Unfortunately, far too many leaders overlook its importance. The result is never good—and can end up as a publicity nightmare.

Take the recent case of what happened at Disney. For 15 years, Bob Iger led Disney as the powerhouse brand’s CEO. When he was ready to step aside in 2020, Bob Chapek took his place. The only issue? Iger apparently wasn’t really ready to step aside at all. Instead, he installed himself as the executive chairman directing the company’s creative endeavors and chairman of the board. Within two short years, Chapek was ousted, and Iger returned.

Though there were numerous reasons for Chapek’s departure, a lack of proper succession planning probably tops the list. Reportedly, Iger had great mentorship. He was supported and groomed for his eventual promotion to CEO. In contrast, Chapek never received that kind of trust-building mentoring from Iger or many of his C-suite peers. Is it any wonder that his tenure soured quickly and led to major headlines that now serve as cautionary tales for other businesses?

If even the House of Mouse can be brought down by poorly handled succession planning, it’s possible for any company to stumble when trying to replace one leader with another. To avoid becoming better known for your succession plan mishaps than your operational wins, you’ll want to know the most common mistakes to avoid. Below are three big stumbling blocks and how to bypass them:

1. Waiting until you need a leader to plan.

We often talk about the truism of “death and taxes” being the only things you can count on. But you can count on the fact that your leaders will churn one day. Whether this is because they resign, retire, or sadly pass away, they won’t be at the helm forever.

The last thing you want is to have to make a knee-jerk decision on how to replace a CEO, CFO, or other leader. That’s why you need a well-considered succession plan. The plan will serve as a map that you can follow. You’ll be glad you have this framework laid out in advance because succession isn’t as simple as just posting a job listing and interviewing candidates. The process can cause ripple effects, such as waning stock (if you’re a publicly traded company) or fearful or skeptical employees who tender their resignations.

According to research from Gallup, around one in two people have quit their jobs due to conflicts with leadership. Therefore, be sure your succession plan includes how and when you’ll communicate decisions to workers. You have to walk a fine line between confidentiality and transparency so your high-performing team members are less inclined to say goodbye and leave your new leader with a sinking ship.

2. Neglecting the importance of cultural alignment.

Every business has a culture. This means that the CEO who might be perfect for one company might be absolutely wrong for another. It’s not a reflection on that person but an illustration of how important cultural alignment is to your succession planning. You never want to make someone in charge if that person is doomed to feel and appear out of place from day one.

Sarah Woods, head of office of BTS Boston, an advisory firm that partners with executives and their teams to shape how leaders engage and align the organization to drive results, stresses the importance of evaluating possible replacement leaders according to how they’ll be received culturally. She cautions against assuming anything in this area of succession planning. “While you may feel you ‘know it when you see it,’ that approach is a high-risk gamble for guiding all the stakeholders to find the right culture fit,” writes Woods. “Clarifying and documenting your unique leadership culture—the best and worst of—and what it looks like in action are important parts of the selection process.”

Admittedly, searching for someone who will slip into place effortlessly from a cultural perspective will take time. Meanwhile, you might have to make do with interim leadership, such as keeping on an ongoing leader, allowing your board to make decisions temporarily, or enabling a team of C-suite executives to steer for a while. Your patience will pay off in the long run because you won’t find yourself with someone whose views and objectives run in stark contrast to everyone else’s in your company.

3. Forgetting to fold inclusivity into your succession plans.

If your company is like 83% of others, you have some kind of DEI initiative in place. That’s terrific and can help your business remain competitive in an atmosphere where both employees and consumers are eager to work with inclusive organizations. However, you shouldn’t overlook DEI when creating your succession plans. Otherwise, you may wind up reverting to biased ways of naming a successor.

Traditionally, many succession attempts include placing only the “heir apparent” into the open role. As you might suspect, that individual is often part of a rather insulated, homogenous network. The person might not even be as qualified as other applicants. Nevertheless, they earned the promotion because of old-fashioned (and frequently biased) “rules.”

To make your succession plans inclusive, you need to go beyond the “there’s only one obvious person to fill this leadership position” mentality. For instance, seek applications from people both inside and outside your organization. And take time to update what your incoming leader actually needs to possess in terms of skill sets, experience, and education. Your old executive job descriptions probably haven’t been given facelifts in years. Now’s the time to freshen them up. Then, you can start rethinking your interviewing and onboarding procedures so you don’t miss the opportunity to be inclusive and line up your hiring with your DEI goals.

Succession planning isn’t an exact science and takes some work to get right. Nonetheless, it’s essential if you want your business to avoid problems when leadership changes occur.

You can leverage your real estate investments by borrowing money to afford a higher purchase price. Knowing how to calculate a mortgage payment is important to make significant business decisions when adding to your real estate portfolio.

Typical Costs Included in Your Mortgage Payment

Your mortgage payment involves many costs, not just the amount you borrow to invest in a home. Some variables you may control, but others are fixed monthly expenses you must include in your mortgage payment, such as monthly interest, taxes, and insurance.

Principal

The mortgage principal is the loan amount you borrow to buy a home. To determine the loan’s principal, first determine the size of the down payment you’ll make on the property.

For example, if you’re considering a property that costs $300,000 and has a $100,000 down payment, your loan principal would be $200,000, as that’s how much you need from the bank to complete the transaction.

Interest

Interest is the fee you pay to borrow the money. You pay an annual interest rate but make monthly payments with a monthly interest rate (the annual rate divided by 12). The interest rate on investment properties is usually slightly higher than the rate lenders give borrowers purchasing a primary residence because there is a higher risk of default on investment properties.

Your initial mortgage payments will be more interest than principal, but as you pay the principal balance down, the interest paid in each payment decreases. You can evaluate interest savings by shopping around for the best loan program.

Taxes

Property taxes are a significant part of your mortgage payment, as they are required to own a home. Since you are the property owner, you are responsible for paying the property taxes. You may set up an escrow account and include one-twelfth of the annual tax bill in your mortgage payment or pay the property taxes yourself, but you should still consider them a part of your mortgage payment to keep up with the property tax bill.

Mortgage insurance

Conventional loan lenders must charge private mortgage insurance (PMI) when borrowers put down less than 20% on a property. This insurance protects lenders if a borrower doesn’t make the required payments and is an added layer of reassurance when lending to an investor with a loan amount that exceeds 80% of the property value. To avoid mortgage insurance, you must put down at least 20% on the property, which most investment loan programs require.

Homeowners insurance

All lenders require property owners to carry homeowners insurance to protect against any losses on the home. Most lenders require 100% of the replacement cost in coverage to ensure enough financial protection to rebuild the house should there be a total loss, such as a fire.

HOA (homeowners association) fees

You’ll be responsible for the fees if the property is in a homeowners association. Most lenders don’t include the HOA fees in the mortgage payment, but it’s a part of your monthly expenses and should be included so you know your total monthly costs and can determine if a property makes financial sense.

What Is Amortization, and How Does It Impact Your Payment?

Mortgage amortization refers to how you repay the mortgage loan. Mortgage loans have a fixed monthly payment and defined end date. Although the payment amount is fixed, the amount you pay toward the mortgage principal and interest changes monthly, even if the monthly rate doesn’t change.

For example, if you borrow $200,000 over 30 years at 6%, your monthly mortgage payments would be $1,199.10. In the first month, you’d pay $199.10 toward principal and $1,000 in interest. By the 12th month, you’d pay $210.33 in principal and $988.77 in interest.

By the last payment, you’d pay $1,193.44 in principal and just $5.97 in interest. As you can see, paying interest is a part of the mortgage formula, but the amount you pay decreases over time.

How to Calculate Your Monthly Mortgage Payment

Knowing how to calculate your mortgage payment is important, but if you prefer that the calculations are done for you, there is an easy mortgage calculator.

An easy formula

To calculate your monthly mortgage payments, you’ll need the following information:

• (M) Monthly payment amount
• (P) Principal amount or the loan balance
• (I) Annual interest rate divided by 12 months
• (N) Number of payments

The mortgage formula is calculated as follows:

M = P [ I(1 + I)^N ] / [ (1 + I)^N ? 1]

As you can see, using a mortgage calculator provides the easiest way to calculate your monthly payments, especially as you look at different financing options when buying an investment property. The key is finding financing you can afford that makes sense in your operational costs.

What Are the Different Types of Mortgages?

As a property investor, you have several options when choosing the loan type. Government-issued mortgages usually aren’t an option except in rare circumstances, but the remaining loan types can help.

Conventional mortgage loan

A conventional mortgage loan isn’t government-backed. They are available as conforming and nonconforming loans.

Conforming loans follow the FHFA guidelines, including loan size, credit score, and debt-to-income ratios. The current conforming loan limits are $726,200 and $1,089,300 in high-cost areas.

Nonconforming loans don’t follow the FHFA guidelines and provide more customized options for investors with unique credit profiles or buying expensive properties.

Jumbo loan

Jumbo loans are a subset of the nonconforming loan category. These loan amounts are higher than the conforming loan limit and are more common in high-cost areas.

Fixed-rate mortgage

A fixed-rate mortgage is the easiest to use when learning how to calculate a mortgage payment. With a fixed interest rate, your monthly payments never change. The only exception is if you have an escrow account and your property taxes or homeowners insurance bills increase or decrease. Most fixed-rate mortgages are available in 15- to 30-year terms.

Adjustable-rate mortgage

An adjustable-rate mortgage is a little harder to perform a mortgage calculation on because the interest rate changes. This is when mortgage calculators are most useful because you can calculate best- and worst-case scenarios when deciding if an ARM mortgage fits your budget.

Government-insured mortgages

Government-insured mortgages are for primary residences only and include FHA, VA, and USDA loans. The only way a property investor could use government-insured mortgage programs is by house hacking, or buying a multiunit property, living in one unit as their primary residence, and renting out the remaining units.

Government-insured mortgages often have lower interest rates, but some loans, like FHA, charge mortgage insurance for the life of the loan balance.

Reverse mortgages

A reverse mortgage is for homeowners in their retirement years who want to use their home equity but not leave the home. A reverse mortgage doesn’t require a monthly mortgage payment but accrues interest that becomes due when the borrower no longer lives in the home.

15-year mortgages vs. 30-year mortgages

As you calculate your monthly mortgage payment, you can choose a 15- or 30-year mortgage. The longer 30-year term has lower monthly payments, but you’ll pay more interest over the loan term. A 15-year term has a higher monthly payment, but you pay the loan off faster, paying less in interest.

Mortgage Interest Rates

Mortgage interest rates have been a hot topic since the pandemic. During the shutdown, interest rates were lower than anyone had seen in decades, but they have since increased, which to some seem high, but they are back at their typical level.

When deciding if you should invest in a property, the mortgage interest rate is important in the mortgage formula. It’s not the only factor you should consider, but it is a cost of investing and can reduce your profits, so it’s a good idea to shop around and get the lowest interest rate you can.

What Is a Debt-to-Income Ratio?

When lenders determine if you’re approved for a mortgage loan, they assess your credit score, income, and debt-to-income ratio.

The DTI measures your gross monthly income to your monthly debt payments. The ideal DTI is 36%, but many lenders allow property investors to go higher, especially if you are a seasoned investor.

How does a debt-to-income ratio affect affordability?

However, your DTI affects your affordability. If the industry struggles, the more money you have committed to monthly obligations, the harder it becomes to afford your payments. For example, if you max out your affordability and suddenly have an increased vacancy rate, you might struggle to make ends meet. Keeping your DTI at a manageable level is ideal.

How a Larger Down Payment Affects Your Payment

When investing in a property, you will likely make a down payment. The more money you put down, the easier it is to get approved for financing, and it lowers your monthly payment. In addition, some lenders may offer a lower interest rate if you have more equity in the property.

Tips for Managing Your Mortgage Payments Throughout the Life of Your Loan

After using a mortgage formula or calculator to determine your mortgage payment and getting approved, it’s important to know how to manage your mortgage payments, especially if you own multiple properties. Here are some tips:

• Set a budget: Make sure your monthly mortgage payment fits into your budget and that you account for the area’s average vacancy rates, so you have a better idea of how much income you’ll receive.
• Keep an emergency fund: As a landlord, you’re responsible for all repairs and regular maintenance on the property. Having the money handy will avoid issues affording your monthly payment.
• Make extra payments: If you have the money, consider making extra payments to shorten your loan term and save money on interest costs.

Mortgage Payment FAQs

Knowing how to calculate a mortgage payment is important. Here are a couple of common questions investors have about mortgages.

Why does your mortgage periodically go up?

If you have a fixed monthly payment, you might wonder why it changed. You have a fixed interest rate, so your mortgage principal payment or interest rate didn’t change, but your property tax or homeowners insurance bill might have increased. Your mortgage company will conduct an escrow analysis annually to determine if your mortgage payment is enough to cover your annual costs, or if it must change.

How do lenders decide what you can borrow?

Lenders look at many factors when deciding how much house you can purchase. They examine your credit score, history, income, employment, and assets. They calculate your debt-to-income ratio and compare your intended down payment to the minimum down payments required for each loan program. Lenders must ensure you can afford the payments beyond a reasonable doubt.

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

Diane Swonk, chief economist at KPMG, says there’s unlikely to be another “mic drop” moment — like U.S. Federal Reserve Chair Jerome Powell’s 8-minute speech last year — at the next Jackson Hole meeting.