What size to build…

Question

So I've decided to go with building a single family rental home. My question is, what size do you think would make sense financially? Say you could build a 800 square ft home for 125k , but you could build a 1500 square ft home for 180k . Anyone have insight on this? Or actuall experience with this?

Jeremy Horton · Answer

Building a new construction one off LTR SFH is going to be nearly impossible to complete and rent for a profit. The way you would do this, if you wanted to do a LTR SFH, would be at scale, ie: a rental neighborhood. Even this would be tough to do. This is why almost all new builds are luxury or affordable units at scale. The money here is made with the developer of the land and the builder. And they are generally selling something.

If I were to build I would only do multi family affordable housing at scale - townhomes, a small apartment complex, trailer park etc

Jason Wray · Answer

Drew,

It's great to build new as long as there are comps to support the subject property being built.  Mapping it out is easy using the lot size, sqft, bed/bath count, property type, local rents, and location.  There are a few things that can help it +/- based on property type alone or number of units.

Building moderate or even using Modular versus Manufactured for example can be a huge difference in future equity and rents.  Neither one of them is a bad option as long as you map out your proxy in advance covering all of the above and having a strong team/Network to help plan and execute.

Building as a Primary Home or Vacation Home lets you finance the land into the build if needed.  If you own the land/lot then equity will or can be applied in most cases.  If its an investment it gets tougher and the rate/terms/fee's will be higher.  You also get a higher LTV/CLTV with Primary and Vacation versus investment.

If you can build as a Primary or Second/Vacation home you can still convert into an investment down the road but you start with a higher LTV (Less down), and lower rates/fee's until you need to refinance down the road.  Most of my CA, NY investors buy in Indiana and over the last few years have cashed on the quicker positive ARV options, and better purchase prices

If you ever have any questions, feel free to check out my profile or send me an email.  I am always happy to help other BP members save money and time!

JD Martin · Answer

If I were building a SFH specifically as a rental it would be a 3/2 square box with no garage or at most a side carport, with an integrated front porch or rear porch. Preferably on a slab, which is the cheapest foundation you can build, and with roof trusses. I would try to limit the SF to about 1100-1300 depending on the floor plan. Even with the run up in prices if you GC it you can get into something like that for $150k not including the lot, so in the right areas it could make a lot of sense.

Ryan Arth · Answer

@Jeremy Horton An interesting counterpoint to your comment would be Redwood Living. They have more than 12,000 build to rent units over a few decades. They are local to me, but work in multiple states. They build communities of side by side duplexes. I listened to an interview with the founder recently in which he said they build 1300sqft with a 2 car garage, on a slab, and their average rent was $1700 (midwest). Their primary demographic is downsizers who are used to a house but just wanted a fixed payment and no maintenance.

They are very dialed in, raising capital per community, and then cash out refinancing and returning capital.

We had considered this model for a portion of a development we are working on, but zoning only allows 20% of the site to be attached doubles and I don't know if I want to try to convince them otherwise.

Jeremy Horton · Answer

Sounds like it actually makes the point

"If I were to build I would only do multi family affordable housing at scale - townhomes, a small apartment complex, trailer park etc "

Drew Phebus · Answer

@Drew Phebus something like this would rent fir $1500

Drew Phebus · Answer

@Jeremy Horton well at first that's what I thought. But I've found a builder that's selling 1400 sq ft homes here for 185k . They aren't in the nicest area but still , if he can build it and make a profit. Surely he's making at least 20k, then subtract realtor fees. So if I can find a lot for 10k , I would think I could build the same for 150k

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