Build to Rent? Does anyone do this?

Question

DFW housing market is super hot (expensive) as you all know, which makes it very difficult for a newbie like me to get in the game. So it got me thinking, why not build on one of these small lots in South Dallas. Small 1300 sqft house on a small 7000 sqft lot. My thought was to use it as a rental.  I was wondering if anyone has any experience doing this or if it would even be profitable.

Wes Johnson · Answer

@Silvia Ochoa I guess you should coin this strategy as the "Build-n-Hold"  lol. I think it's an excellent idea. much like flipping. you just have to get the land cheap enough. and in the side of town you're talking about that shouldn't be too hard. Make sure the building costs allow for all of your expenses, carrying costs, permitting & zoning etc. You'd be doing a mix of spec-building/new development + holding it for cash flow instead of selling it like most developers do. I couldn't see this working with single family though. I don't think you'd want to spend that much, risk that much, wait that long only to realize $200-$300 / month in cash-flow once all the expenses are factored in. Since you're combining two strategies, you're also taking on both types of expenses. You're dealing with building and development expenses (and the finance expense those ventures require) and cap ex/ongoing repairs like any normal landlord. I see this only working if you're scaling probably 6 units or more. Build a new multifamily building. THEN the cash flow potential makes this type of creative deal make sense. keep us informed....you should really check out the development and spec building part of the forums there's a lot of good info there.

Pimwadee Limsirichai · Answer

I'm actually a builder in the DFW area currently with some projects in Dallas itself. We build both custom and spec homes across the metroplex. Historically, we built a lot in the Lakeridge area in Cedar Hill and Grand Prairie. We currently build wherever we find land and renovate for any and all customers looking :)

DFW is definitely a very hot market, and build-to-rent is, from my analysis, a more viable option than something like a BRRRR. I've chosen to built-to-rent instead of flipping or BRRRRing simply due to the unreasonably high cost of distressed properties. My analysis hasn't turned up too many properties that would turn a reasonable (rental) profit so far.

Feel free to PM me if you have any questions about building!

Harold K. Childs · Answer

I am absolutely looking into building on a vacant lot now.  I think I can put 3-4 townhomes on the small lot. Finding a construction company who can help with detailed architect plans has been difficult.  Were you able to find anyone?

Lydia R. · Answer

There are a handful of build to rent communities in DFW. The most recognizable is the CastleHills development. They built a neighborhood of brand new homes and they are all rentals. It makes sense on a scale like this because you are able to spread some of the costs across multiple properties. Also the are going to have very low maintenance costs for at least the first 5 years because everything is brand new. The concept itself is pretty cool. I dont think build to lease would work on a small, one or 2 home scale. However, seller financing is very popular here in the DFW area and I think that would work on a build to seller-finance business model. Its still passive income like a rental except you dont need a property manager, you dont have to fix things when they break etc. And if you dont want to hold the note for 20-30 years you can always sell the note and recoup your investment and do it all over again. Just my 2 cents.

Steven McCord · Answer

I think it's a reasonable idea. There are lots of vacant lots in inner parts of Dallas and Fort Worth, it's a question of identifying which specific blocks are too risky vs ones that are OK. There are many factors to consider. I do this kind of analysis using many types of data.

Dakota Ferguson · Answer

If you were going to build a new home wouldn’t you rather pay a little bit more for a better location?

The price to build shouldn’t change, so I personally would prefer to not build in an undesirable neighborhood.

Also, is it really cheaper to build new rather than second hand? I don’t think so. You mentioned being a newbie, if your strapped for cash I think it would be much harder to build new. Construction loans are more complicated and typically require more cash. I would imagine cash buyers could get away with this model much easier than the average person.

Just my 2 cents. Interested to hear from somebody that has done this before.

David M. · Answer

@Harold K. Childs

Yeah, the trades are all busy.  They've been busy all through covid...

I'm just seeing this thread for the first time...  Its not really new...  You know there are whole developments that get build specifically for rental...   I don't think you hear much about it since historically residential REI was more about the equity growth of real property.  Good luck.

Matt Bishop · Answer

@Dakota Ferguson, I would not consider anything South of I-30 very dangerous.  It's safer but more expensive on the North side of town.

Harold K. Childs · Answer

Update.  It has taken forever.  I contacted a few builders who seemed like they were not really interested.  After discussing it with my property manager more than twice, he gave me a contact after some research.  I met this small builder on site of one of his projects.  He said he has been doing it for himself and with his father for almost 20 years.  He was able to do all plans himself.  We got some plans, and he connected me with a commercial banker that he's worked with in the past.  I did have to put up a lot of money for these initial plans and his county record research.  We got financial approval.  He spend 3 months applying for permits (I was told).  Then I was told we should wait 8-10 months when the pandemic started (I think it was a stall tactic while he worked on another project).   We reconnected in Oct 2021.  It's been a waiting game for him to get to a point where we could move forward again.  He said the city was the main hold-up.  I called a few other builders who either had minimal experience or no bandwidth for another project.  So, I'm kind of waiting.  I had to resubmit everything for financing(for a third time) 2 weeks ago.  Construction costs went up 25% since the original bid.

I'm told we should be able to move forward in the next week or two.   Fingers crossed.  The project will be a total of 4, A-class townhomes.

Dustin Ray · Answer

@Harold K. Childs my good friend is an architect that specializes in multi family.  May be worth a conversation for you.  Would you like the contact?

Build to Rent? Does anyone do this?

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