All Forum Posts by: Ed O.

Do you have experience doing build outs like this and a track record, or a relationship with a bank? Banks likely wouldn't do this deal without a strong borrower (credit score, assets, income) and experience (lots of both).  There's a lot of risk in building for the bank and when the build is done and sold, their loan closes, so at best they're earning interest for a year or so, making the loan less desirable than other products. I'd suggest starting with 1-3 units, getting them done, then doing more -or- finding a capital partner. Call a lot of banks. Some banks want construction loans and are more aggressive and some don't want them and would be terrible to work with. Avoid the large national banks (wells fargo, chase, us bank, etc.) as they are a waste of time and completely inept to understand the needs of local customers. 

@Chan Park

I think your best bet is to have a call with a lawyer that handles evictions to come up with a game plan. Rules vary a lot from state to state and even by smaller segments. You might try and connect with people in this community to get referrals of the bulk eviction attorneys.... this is the difference between a 1k eviction and a 3/4k eviction...can you imagine how I know this? 

I hear some advice about getting a property manager. I wouldn't jump on that yet. I have worked with a few and experienced rookie mistakes worse that what your describing at one of my homes by a company managing 600 properties. For a few hundred dollars (and a few passed tests) anyone can call themselves a property manager. The honest truth is that the great majority of them are not good. 

I'd encourage you to review what sort of qualification requirements you want to require. I look a lot at applications like I'd be underwriting residents to buy a home. Additionally, self employed people get a lot more scrutiny as their information is difficult to verify and ability to collect on defaults is low. 

If you go to a lot of large landlord or apartment complex websites, they will often list their requirements to qualify. If you can find a great leasing agent, it too can be one of the best things you can do. Like I said in my previous post, many leasing agents (not all of course) are total who res trying to get a fast leasing commission. In doing so, they set up the owners for a quick failure and massive turn expenses. Good ones can be a game changer tho. 

As far as getting them out - I assume they are behind, but am not clear. 

1. Try and talk them out, by indicating the costs and consequences of an eviction and how you can help them avoid it. 

2. Hybrid / Cash for keys - pay them to leave. Start by offering to cover the cost of a moving truck for the day they will move out. Again, you don't put your own credit card down or guarantee the truck, you can go to the rental place and lay down cash so they may rent it. Sometimes that's enough. If not and you have to pay them to go, they get no money until the home is totally empty and you walk thru it to make sure they haven't blown it up.

3. Eviction

4. Grant programs. The government touts the amount of money available, yet has dispensed, from what I have seen less than 5-10% of it, which is about as ridiculous as the government itself. Additionally, the programs to get free money come with strings attached which I would never commit too. This, in my opinion, is largely a false hope. 

@Cordell Critchell

I did a 32 lot subdivision and am working on another. 

Switching builders probably can't be done gracefully. It's difficult enough changing a single sub in the middle of a project (I'm doing this now and it is a nightmare). Few want to or are willing to resume / fix / take over another person's work. 

It will be very difficult to find a replacement builder and I'd be wary of a builder willing to do this. 

I'd wager you're better off forcing yourself to be involved in the scheduling and the process. At least that way, you can make sure people show up and that the project isn't idling. I doubt any replacement builder would commit to timeframes as there's a lot of variables and several unexpected product shortages. Who knows what it's going to be this week. 

Of course, if this is a larger scale project, the cost of the lack of speed is higher. What kind of project is it?

@Waylon Zook brings a great reason why. I agree, some retail buyers can be a lot more & headache than selling to an investor. Skipping commissions can also swing the net sales amount closer to what a retail sale would bring. The build to rents we have done have all been in what I'd describe as the upper middle segment of housing, 4/2/3's, 3/2/3's in good areas, etc and have worked out nicely. 

Another benefit of selling build to rent vs. retail is that if the units are presold before breaking ground, the buyer (at least in my market) is ultimately funding the build from the start, compared to (retail) the builder funding it out of the gate, covering carrying costs and then having to collect profits at the end and often fronting other money.

@Lesley Resnick  - the ones you build and place into service - what sort of homes are they? Are you acting as the GC or farming that function out? Good to hear there's some people in the room actively doing this with some volume.... I can't seem to find too many people / operators in a somewhat similar spot...  

We generally get 2 year leases on anything (that's new) we rent out / manage that's new and have solid demand. Our model has been exclusively SFRs. Lately we've gone with 4/2.5/3's where possible. 

Ed

Hey Chad. Long time, hope you've been well. 

My suggestion would be to identify all of the medium and large size home builders in the St. Louis and St. Charles Metropolitan areas and approaching them directly. You might contact the lumber companies, as they are important parts of building large numbers of homes and might be willing to tell you who their larger customers are. A google search would kick up a decent number of companies to ping also. You could also check permit activity and see who is pulling a lot of new construction permits.... Good luck!

Ed 

It would be best to have them move out. 

I'm guessing they weren't screened too well as you seem to indicate. Try and learn from this - what mistakes were made and what was overlooked, so you don't repeat them. If this tenant was a dud from the start, then fire the leasing agent (if you used one) and replace them. Many leasing agents are about the quick commission and don't care if the owners have a good tenant. I'm unclear - are they caught up, but won't pay 11/21 rent in full? Best bet for you and them is for them to find a more affordable arrangement. With that said, it's tough to rent out in December/Jan/Feb. 

It sounds to me like they're setting you up for a long term slow/no pay. 

@Scott Bell Op - are you talking about scraping the old off and building new, or developing raw ground? Both? 

There's not much content here and the guys in my town that have the brain capital ain't talking much. I've completed a 32 lot development which was distressed and abandoned and done some build to rents. There's a few people who have here from what I gather, but they don't seem to hang out here. I've been also searching for some good resources on this too. Maybe @Cameron Skinner will stop by and say hello. He was on a great podcast here (on build to rents) - link below and is incredibly sharp. 

@Cordell Critchell In @David Krulac's book, he mentions some great tips about developing rural ground, like trying to use the existing roads, instead of paving your own in order to save money while splitting the land. You might check that out. 

If you find some other good sources of info, please share it here. Good luck with your projects.

Ed

BiggerPockets Podcast 168: Building Hundreds of Homes to Sell or Rent with Cameron Skinner

Good for you! Wish my mom was still around so I could do the same for her. @Bruce Lynn is spot on, gotta plan for this to be a home she can continue to age in. I'd do some research on homes for the elderly and see what you can pick up on. A Flat lot or flat location on your land would be best as you could get a 0 entry home. Not sure of your mom's age, but while framing it would be good to determine locations / future locations for grab bars and throw a few extra studs in those spots. Using "lit" light switches is a thing we love to do and the decor style might be more friendly to older people. My short tips on subs - good, fair priced subs know eachother and are great referral sources. Get your terms in writing before work starts and get and verify insurance for the subs doing the work, or assume you're self insuring them - which is not favorable. Also, I'd encourage building a modern home, which would be marketable whenever it's time to sell. For instance, I see 1 car garage homes going up, this is insanely foolish unless this is limited by the lot size or other parameters. I'd say a 3 bed as a minimum too. Good luck with it. 

Most here would say I'm not smart, so tread carefully.... 

Best way to build them out might be how you've suggested. As a Builder, I wouldn't be interested in the deal right now (profit sharing/splitting), because there's simply too much work out there and everyone is turning down jobs. A modified approach to this could be for you to subsidize the builder by carrying the lots during the build and collecting your agreed to price after an agreed to timeframe. Lots of builders do this. 

I haven't worked with a lender who would not release some, but not all of the lots out of a loan in the scenario you're describing. This is quite common. 

Can you elaborate on your last sentence? How certain you are about not being able to sell lots outright (up front) if I am understanding you correctly. Why can't you simply escrow the costs of the road repairs with the local government or provide them a letter of credit to accomplish this? This happens all the time around me and in many ways it makes sense for the developer and the governmental parties involved. 

On this site, it seems like there's a lot of crickets when the subject of residential development and larger scale residential building comes up....which is disappointing as there's a lot of wise people here... maybe the niche is smaller than I thought or we're looking in the wrong place for answers.... IDK on that one.....