Built To Rent- anyone doing it?

Question

Anyone building for rent sfh of duplexes?

Kevin Purvis · Answer

I build to hold.  normally infills or ADUs on lots with existing homes, although doing a bigger project right now.

I dont know about your area, but for me, what I do is research multifamily rent prices.  I then assume I can get at least that for a detached home or detached ADU with separate entrance.  Then I use that to back into potential return using pricing ive got in the past for modular or manufactured homes.

generally speaking if I am cash flow positive first year, then it typically makes sense.

buying and holding is great for those with already good income, which I sense is why you dont hear a lot about it on these forums.  Most people are looking for a big cash-out which doesnt happen in this mode.

happy to talk numbers at higher resolution but im also in California so I think my pricing is probably way off.

Carlos Ptriawan · Answer

These days in Houston/Dallas Metro many are build-to-rent, about 2000-3000 units. They bought cheap land as you said. I do have more detail but only as biz dev site and it's private. Some REIT is also going to this route so it seems it's the future for the large developer.  Maybe if you want to invest you can buy on the same land ?

Hai Loc · Answer

@John Suttom

Where I am from it almost makes no sense to do it..

Multi family the cost to build including permits, development charges and just holding costs until completion you won't gain much equity.. unless cap rates compress quite a bit during that period and rents increase.. so overall the time value of cost is not worth it.. you mine as well find an existing building ans deck it out..

It's the same for duplexes and smaller multiplexes under 4 units.. the rent ratios are so low that it won't be appealing for buyers..

I would never build something and use projections of what the value will be and the rents upon completion.. I will only use existing data..

On top of all of this we have strict tenants laws and rent increases are at a minimum at the moment and evicting is extremely difficult..

John Suttom · Answer

@Ed O.

Thanks. Good info!

I’m looking at in fill areas of old neighborhoods. In this area, new homes and rehabs are bringing strong numbers- $175+ a foot, sometimes north of 200. It’s an area that is becoming more and more popular. 1500-2000+/- foot homes. What I think are cheap lots. 50-80k

I’m looking to increase my buy and hold portfolio. I haven’t been able to find enough good deals out there recently. So I thought I could build and hold.

I have other businesses so income is coming from other sources.

I do flip homes as well. Again, not enough deals available and competition has been crazy.

I could sell the new build which I might. But I would prefer to hold.

I want to attempt to run it just like I do my brrrr’s in that I have always gotten 100% of my cash back out. I’m buying with cash and then putting long term financing in place and they have all worked out allowing me to pull all cash back out. I assume I can do the same with a new build as long as rent amount and appraisal all is good.

I’m waiting on my draftsmen to finish drawings. Then I’ll work on budgets. I think I can GC it myself. I do with all of my flips and rental rehabs. I have contacts for the trades I don’t use in those like site work, foundation and major framing.

What are you building yours for per foot? What’s your rent per foot?

Ed O. · Answer

Our typical s/f is 1400-1600. We try for 3 car garages where we can fit them. Some lots don't provide enough room for them. At  a minimum, 3bed/2baths. Usually, we go for a 4 bed / 2 or 2.5 bath house. One reason: there's not a lot of 4 bed inventory in our market and the added cost apples to apples, of having a 4th bedroom is barely noticeable. A family needing 3 bedrooms can make a 4 bed house work, whereas a family needing 4 bedrooms doesn't want to make a 3 bedroom house work.

Yes, I GC them myself. The rules in Missouri, I expect, are a lot less painful than in many other areas. On it working on a small scale - it could work. I'd warn you of a common theme I hear - people finding super cheap lots in distressed areas and wanting to build new there, because the lots are so cheap. I've always built in newer neighborhoods (0-20 years old) without any blight or like types of issues. I  think build to rent in an area like that would be a lot less attractive and less likely to succeed.

Why do I not build to sell:

I do sell some homes to investors and then manage them. I suspect you're asking why I don't sell to end users/homeowners. Build to rents are a lot easier and homeowners can be pretty difficult to work with at times. I plan on selling some moving forward as new however.

A few other reasons I like build to rents vs. typical rentals: they attract great, well qualified applicants, they usually bring 2 year leases, we're able to incorporate the details important to us into the home for aesthetics and durability, everything of of course is new, so a lot less maintenance calls, last - they require a lot less effort to manage relative to more common rentals.

Wesley Sherow · Answer

Oddly in my time looking into investments I don't see build to rent come up so often. Many of the new developments I see nowadays are built and then sold as turn key investments to those who want to hold. What is the executive summary of why you chose this niche? Why not build and sell?

John Suttom · Answer

@Ed O.

Interested to know first off it can make sense doing them on a small scale, infill locations. Maybe some numbers. What square footage are you building? Beds baths count? Do you GC the build yourself?

Thanks!

Ed O. · Answer

I do build to rents. A few for myself and a bunch for investors. I've only done SFRs to date, perhaps it's driven by the market I'm in. What are you wanting to know about them?

Nicholas Field · Answer

I'd refer you to Evan Halliday. He was on a BP episode. He doesn't do single family or townhomes, but major affordable rentals.

I'm going to hold on to 1/3 of my new builds moving forward.

Built To Rent- anyone doing it?

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