is build to rent a viable strategy outside of 4-5 states?

[Robert Ellis]

Build to rent (BTR) is still one of the smallest part of the new construction market. Less than 10% of all new single family home deliveries. Where does it fit in the market?

I spoke to one of the larger land entitlement firms in the country who's working on 18 projects at once that represent more than 2500 housing units. A representative who has more than 35 years of experience in land entitlement. His opinion? Build to rent developers are paying less for tracts of land than single family home builders on the horizontal entitlement side and he doesn't entitle for build to rent. That's one supply limitation. What large developers can pay for land drives horizontal development trends nationally. 

A second recent conversation I had with one of the larger build to rent developers revolved around single family home rentals. They like to be in markets where a 3 bedroom starts at $2600 per month. There are parts of Columbus where we are heavily involved in ground up construction and land entitlement that you can hit that number but not even 80% of the market pays that on a rental. 

We got to talking and in reality he said the rental numbers they need per square foot is around $1.70 per square foot. You can get that in our market but you need to rent apartments not single family homes. He also mentioned they are really only focused in Florida and the coastal Carolinas where they can get those rents. He said even texas he couldn't get those numbers. 

That begs the question, does build to rent have a place in the market? From my talks with national developers and national land entitlement firms there are limited markets and if they are paying less for land it's not a target for ours. 

Personally, more than likely we won't be entitling large tracts of land for build to rent. I've heard the same feedback over and over but would love some additional commentary and comments. What do you think about build to rent? Where are the numbers working on a national basis? Detached single family homes and apartments are being built in almost every market but I don't see build to rent in every market. 

In our other development market in Miami you could never get the land for build to rent to work. 

[Matthew Becker]

Quote from @Robert Ellis:

Quote from @Matthew Becker:

I do build-to-rent infill.  Buy a rental on a large lot build on the back side.  Rental break even on the front of the lot and your dirt to build is free.  

 I build for about $110 a foot.  Rent for $2 a foot or more is my goal.  

Current build 10@ 400 sqft studio Cost $600K Rent$10K a month, New value $10K X GRM 150 = $1.5M Refi take out 1M. You make $400k tax-free and cash flow well. Plenty of Debt coverage, and you get a great rate because you are not leveraged.

I think what Robert is saying can you do that with 20M, not $600K.  You need more dirt, and that can be a challenge.  I don't think larger-scale rent-to-build works in regards to cash flow.  I think it would be very difficult to buy 10 acres, put in all the infrastructure, and still make money.  The dirt needs to be very cheap, in my case, free.  It is very expensive to develop land, and you have to carry debt without cash flow.  I have been brought deals, and I can make them cash flow, but it is not great.  I think institutional money can do it and hold for appreciation because they come in with 500M to start.  

But I will build to rent 10M this year all infill and all nearly free dirt or very little cost.  The next one I am doing will be about $10K a unit.  Keep it small and keep it all.  One thing at a time gets you where you need to go and you don't really need a ton of cash to do it. 

 great comments. yes this would apply to 100+ housing unit horizontal BTR developments either in townhome layouts or detached BTR. just what we are seeing in cheaper markets. those rents are great you are doing it right by building smaller studios. I always said the solution to housing is micro units or smaller units under 700 square feet not single family detached. 

We are just becoming a renter nation like Western Europe, which makes sense because we came from there or the base of our culture.  People are the same everywhere.   Location is more important than size.  People need to be where the money is.  You can't make money living in a tiny town in the middle of nowhere.  Remote tech workers could, but they will all be digging ditches in 5 years when AI takes over their jobs.  Most of them cannot dig a ditch, but they will do something.   The Wealthy will be the only people who own their own home in 50 years unless they live in an undesirable place like Detroit or Cleavland or any other crappy city in the middle part of the country.  Crime will be more rapid than it is now.  Public school systems will be worse if that is possible.  The sacrifices we make now will determine if our grandchildren are living in a cesspool or a nice house with a garden.   Most people under 30 have already given up and just spend their money on fun stuff, but they are going to be screwed in 20 years.  So, as I have always said to everyone forever.  Stop paying $12 a day for a latte and buy a house. Nice to hear from you, Rober. It hope you are well.