Housing talk

Steve Gilbert (left) with Rural Housing 360, visits with Gary Reisz of the Denison Planning & Zoning Commission, Denison City Manager/City Engineer Terry Crawford and Crawford County Supervisor Dave Muhlbauer about housing construction opportunities through his company’s model, including USDA loans with no down payment and the closing costs included. Gilbert spoke with those interested in housing at Denison City Hall on Monday afternoon. Photo by Gordon Wolf

At the invitation of Denison City Manager/City Engineer Terry Crawford, Steve Gilbert, founder of Rural Housing 360, presented to housing agency members and others how his business could be one of the solutions to a lack of workforce housing in the county.

The Rural Housing 360 business model focuses on what Gilbert calls the “missing middle” – those people whose incomes are too high for them to qualify for any assistance and not high enough to afford a custom-built home.

Rural Housing 360 works with employers and communities and helps guide employees from the loan pre-approval process through moving into their home.

Rural Housing 360 has a finance manager, project manager and a portfolio of modular home plans from 600 to 1,500 square feet – and soon 1,700 square feet – to choose from. The homes are constructed at the business’s property in Martendsale, located about 10 miles south of Des Moines on Interstate 35.

Gilbert started Rural Housing 360 as an offshoot of a state initiative in which he was involved. After six months of traveling for the state, he said he sat back and decided to continue to travel, this time for his newly-formed business.

So far he has visited more than 140 Iowa communities in 45 counties and has conducted a number of workshops, including a series of meetings organized by the Iowa League of Cities. It was at one of these workshops, at Grand Junction on June 20, that Crawford met and spoke with Gilbert.

Gilbert said he is able to travel to promote Rural Housing 360 and not charge anything for his time because of the other businesses he owns – a plumbing and heating business, two True Value hardware stores, a spray foam insulation business and a home construction business.

He said this is the first real year of operation for Rural Housing 360. Already seven model homes for communities are being completed while another seven are closing. Gilbert added that another 20 are “in the funnel.”

On Monday, Gilbert met with members of Denison’s Community Housing Agency, Planning & Zoning Board, Councilman Corey Curnyn, City Manager/City Engineer Terry Crawford, County Supervisor Dave Muhlbauer and Becky Jacobsen, human resources manager at Smithfield Foods in Denison.

Representatives of Denison’s city government and boards, supervisors and employers were invited if able to make it to the 1 p.m. meeting.

Gilbert said the Rural Housing 360 business model starts with the financing.

“Rural Housing 360 doesn’t lead with the home. If you take away anything today, it is that it leads with financing and works backwards to what the home needs to look like for the employee,” he said.

Rural Housing 360 works with employers to advocate for local housing for their employees, through regularly-conducted workshops at their workplace in which the workers are told of the opportunities to own a house.

Gilbert said those in the “missing middle” often do not look into home ownership because they believe they can’t afford it.

Rural Housing 360’s model is to work with employees for pre-approval for loans through either of two USDA 520 programs – a direct loan to the applicant or guaranteed loan through a bank.

The USDA 520 loans are for full financing – no down payment and closing costs are included in the loan. Private mortgage insurance is not required.

The 502 guaranteed loan is done through a bank, and many rural Iowa banks know about the 502 guaranteed loan, Gilbert explained. The bank gets a 90 percent guarantee on the loan from the USDA.

In either program, debt to income ratio is considered, as are credit scores.

A difference in the 502 guaranteed loan is that the applicant can make more income than for the 502 direct loan program.

The guaranteed loan is for 30 years at a fixed rate of three and seven-eighths percent.

The direct loan is for 33 years at a fixed rate of 3.5 percent, Gilbert explained. He added that applicants may be able to receive a subsidy and extend the loan to 38 years and an interest rate of one percent. If they sold their home before the loan term, they would have to make the USDA whole at the 3.5 percent.

Gilbert said that so far the success rate of pre-approvals is five out of eight.

He said if four people from Crawford County applied each month and two were approved, that would mean 24 new homes in a year, which adds up.

Rural Housing 360 is a for-profit company, but Gilbert said on Monday it has been operating as a not-for-profit for the past two and a half years. He does not charge for any of his visits or for employers or communities to be listed on the business’s website.

People can take the route that Rural Housing 360 offers on their own – apply for a loan from USDA, line up a lot, order a modular or manufactured home and take care of all the permitting.

Gilbert pointed out Rural Housing 360’s advantage is that it works with communities so that the cost of the lot is not part of the loan. He said communities can acquire and convey lots to successful applicants in a variety of methods. He mentioned Harlan has $1,000 lots. Communities could offer a forgivable loan he added.

He said Rural Housing 360 offers lower costs because of the efficiencies of modular home construction. Gilbert said the lead time for a house is eight weeks. At about six weeks the basement is dug. The home is delivered two or three weeks later. Framing, electrical and plumbing work is done and at about 12 weeks the financial institution is doing its inspection. About four weeks later the closing is done.

Gilbert said 16 weeks from a signed contract to moving in is an average. Sometimes it is sooner, sometimes later.

He said the short turnaround is important to keep the construction loan interest low. Gilbert said by the closing time at 16 weeks, the only construction loan interest may be for the basement, which may be only $50.

He said Rural Housing 360 doesn’t want to spend customer’s money before it has to.

Gilbert said the profit for Rural Housing 360 is marginal but added he knows some of the fruits of the homes being built will be that some of his other companies will benefit.

He said he does worry about whether the business will be financially sustainable, so Rural Housing 360 has a sustainable margin. It’s a minimal margin, he added, but enough of one that he believes he can continue into 2020 and then to 2021, and at the end of the day will have done something good for communities.

Gilbert said jobs were often referred to as the biggest problem for rural Iowa, but now it’s housing.

“Housing is equal to if not more pressing than jobs because employers are fearful of losing employees,” he said.

He continued that employees are either looking for the dollar raise or are looking for a way to live closer to their work.

That can mean moving closer to their work or finding a job closer to where they live.

He said the top three barriers for home financing are lack of cash for downpayment and closing costs, poor or insufficient credit and the increased cost to build outpacing increases in wages.

Gilbert cited a Michigan State University study that looked at cost of home construction from 1978 to 2018. The increase was five percent per year, compounded. He said that adds up to a lot – 350 to 360 percent.

During the same period, wages have increased 1.9 percent per year, compounded.

In addition to the widening gap between housing construction costs and wage increases, today’s families are paying for items and services their 1978 counterparts did not have – cell phones, internet and satellite and cable television.

“All that adds up to straining a monthly paycheck even further,” Gilbert said.

Crawford asked Gilbert if the city would work on its inventory of vacant lots and find some way to acquire and convey some of them, how soon Rural Housing 360 could conduct a workforce housing workshop with an employer, like Smithfield.

“I know you have lots you can build on today,” said Gilbert. “As long as we have an idea how many, we can go. We need to know the available lots to clearly communicate that to their workers.”

“I think we can do some good for some families,” Gilbert added. “Get people to live here, put their kids in the school system and be part of a community, not just drive in every day and leave.”

Rural Housing 360 conducts community workshops on scheduled Fridays in Martensdale. One workshop was this Friday. Another will be July 26. They last from 9 a.m. to noon, he said.

In Tuesday’s Denison Bulletin: How communities get model homes.

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