All Forum Posts by: Ryan Arth

@Jeremy Horton You do have a solid argument. Where it gets really gray is when you look at the fact that to keep up with the historical S&P average, for example, you need to leverage buy and hold real estate to keep up. As someone once said, the building owner should never produce greater returns (unlevered) by owning the building than the company that operates out of that building does. It wouldn't work long term. 

I still think that SFRs make sense for the beginning investor, as they may not have invested with the same diligence over time into the market, etc. If they were a diligent investor and are simply comparing investment options, then your argument is absolutely worth entertaining. A straight LTR isn't very exciting from a return perspective, especially if it isn't levered. There are other strategies to improve the returns, but again to your point, that is moving more towards it being more of a business.

As Jay Hinrichs has said, he only sees real wealth creation and cashflow (at the level he considers impressive) from SFRs when you own 150 or so doors. Everyone will have their own threshold where they would be satisfied though.

I am with you though, we sold all of our SFR. We are building and developing, started a construction company, and have been casually looking at companies that are for sale, adjacent to the industry. All more "business" than investing. The closest active thing we are doing to straight "investing" is looking for value add MF, which again is more active.

It all comes down to investor preferences, their goals, their available capital, etc. If you were only solving for maximum return in a given timeframe there would be a more defined answer.

@Will Shoemaker While calling a civil engineering firm will be necessary at some point, I would start with the City Planner. They will be able to steer you on what is possible from a high level. Then you can see whether it is feasible. If the lots would mostly front roads your infrastructure costs could be lower, if you are pulling them deep into the lot and putting a long shared driveway or whatnot, your fixed costs will be higher. 

To add thoughts to the advice already given, consider how your forever home might contrast with the smaller adjacent houses that you built. Consider setting everything up and then selling the lots off. Consider partnering with a builder on the builds. 

And yes, do consider modular or panelized homes. We are building panelized houses right now that are 1556sqft slab ranches and are at a $360K price point (outlying suburb). We are also planning our townhome project with either full modules or panelized construction.

@Bob Ross If you are hiring a builder, it shouldn't be too complicated, just something that you haven't done before. The City interactions, engineer, architect, will all be new to you, but the builder and architect can guide you. It is all valuable experience, especially if you plan to do this again. 

Our first two builds the builder handled everything. Now we build ourselves and we handle everything. 

@Svit Kovacevic You can call planning/zoning in the city to inquire about what could be built there, given the size, adjacent properties, utilities, etc. You can tie the land up with an option if you get favorable info, then reach out to builders for interest. 

We have land that is zoned such that we could build up to 20% of structures on it as duplexes, but Planning told us that while that is what zoning allows, they would look more favorably on all SFR. So direct conversations with the City can be invaluable.

@Hunter Emond What do you mean when you say flipping land? Getting it under contract and selling it for more to someone else? Or improving it (like house flipping)?

Often, people will buy raw land and then entitle it (improve it), selling it to a builder. Many builders are looking for lots that are ready to go, so there is a value in buying raw land and then going through the process of subdividing it, getting zoning changes approved, etc. Then it is worth more to a buyer, as it is de-risked for them, and they save the time of entitlement.

@Bob Ross As others have said, partnering with GC is a good route. 

Regarding your mentioned plan, why not keep that basement finishing cash towards the build? If you invest it into your basement and the appraisal doesn't come back as you wish, or the HELOC doesn't get approved, etc, you are jammed up. And that would be interest bearing debt, whereas the cash you have is currently available.

Instead of thinking of hard money lenders in the traditional sense, why not think of those in your network as potential lenders/investors. They can invest cash or retirement funds into your venture. The same diligence the bank would want to see completed can be used to show potential investors. 

@James McGovern For simple houses/lots we just buy full plans off of eplans. Then our civil engineer plats that house for our first approval. You can save by finding a draftsman for changes, possibly avoiding an architect.

We found that for one offs on non-custom homes it was just too expensive to involve an architect for full design. For townhomes, commercial, etc, it was unavoidable. 

Also for special projects where we could re-use the design, like what we are working on with SIP panel and modular built houses, the structural and design considerations didn't lend themselves to "canned" plans. 

@Amber Clark I agree with Terrance. At least around here, family office, mezzanine style investors, and smaller PE shops in the hospitality space, would be good candidates for this type of investment. And they frequent the same gatherings, some focused on FO/PE, others are more M&A focused. At this level the groups are less industry focused and more investment focused. M&A law firms are a good source for intel on how to access the network. I found that people referred me around quite a bit once I made intial contacts, and that everyone seemed to invest in each other's projects, or at least knew about them. 

@Caleb Kight As others have said, aligning with people who have done this before is usually the way to have the greatest chance of success. Personally, I think that value add multifamily will pencil over that built from scratch, but I don't know your area. In SFR, there is such demand from owner occupiers that the psf cost makes it such that you can build for less (with efficient design and the right dirt).

Your area may be different, where building small MF can be done for less than the cost of buying and upgrading existing. 

It wasn't clear if you were talking about GCing your own build or hiring it out. With the right team of outsourced professionals and a high enough net worth to be financed, you should be able to find financing. If a bank says that you are lacking anything, find a partner who has what you lack. 

@Stephen Johnston We are doing builds in a development where we have a backend profit split with the land owner. Incentives are aligned.

On another development deal I am the developer, and I have an investor involved. As principal, I hired our construction company to do the build at a fixed profit margin. Sure, I could hypothetically run up construction costs to get extra profit on the mark up, but I would be giving up my return on equity as lead investor (and possibly my invested capital). 

So there are ways to align incentives and structure deals. 

A model that I am working on now, addressing a question earlier in the thread, is to design an efficient house for build to rent. Then we can do multiple projects for an investor, offering a lower price point than a house designed for a retail buyer.