Anyone Build & Hold?

Question

Hey Guys,

Just wondering if there are folks out there who have employed a build-and-hold strategy.  Basically building a spec home with the idea of holding it as a long term rental.  Same principles apply for building cash flow and this would give me the ability to get into a home with some substantial equity from the beginning.

As we've gone out and purchased SFRs, we've come to really like the newer small homes for maintenance, better rental prospects, higher rents, etc...  So it got me thinking about creating my own deal by building at a discount, making decisions along the way that line up with knowing it will be a rental, and holding it as a long term rental.

Do you think this would be viable and are there people who have done this?

Thanks.

John

Ross Leavitt · Answer

This is our primary model. We buy old/small houses near campus (OSU in Corvallis, Oregon) on lots that can be split in half, build two large houses, and rent them out to students. The split and build is an opportunity to add lots of value, and rents are much higher near campus than neighboring areas. It's working great for us.

Rob Harris · Answer

Hey John; it's EXTREMELY viable given a few key factors......  Here's some stuff to consider....

1. Gotta know what you are doing re value building.  Pricing out all the right materials form the start is key.

2. Also sounds like you know the size of house but gotta make sure where you build that the zoning is proper as well as any applicable deed restrictions that may make what you want to build possibly not an option.

3. Are you an experienced builder and know the ins and outs of developing a property to make it "build ready"? Dirt work? Utility Costs? Development fees? etc...

4. Price of Building plans? -- Don't know your area and required design and engineering requirements.  These can hurt a new build's cost efficiency where you have to build to the most recently adopted building codes.  I have found even as a builder in many areas it is better to buy existing just for this fact alone!

5. Time - do you have the time if you are not an experienced builder to dedicate to being at the job and learning the ins and outs of ground up construction?

6. Financing - if you have inexpensive means or cash to do the build yourself, great.... If not, may find it hard to get a bank to finance you if you can't demonstrate a proficient history of like-kind construction.

If you can get the dirt cheap enough and the corresponding comps in the area in which you desire to build substantiate such a move,,,,,, AWESOME!  Just have to make sure you compose a list of all possible corresponding development costs and run the numbers along wth evaluating the risk factors, especially based your building experience.  If you are experienced as such, this will help you dial your numbers in tighter.  If not - one thing you will have to realize that you will probably have new construction subs trying to get in your shorts a bit more preying on any inexperience they may sense you have with new construction and the corresponding costs.  Sometime, new construction (depending on circumstances) can be cheaper concerning number of trades, but again, that's an experience thing...

Maybe you can network yourself into an experienced builder and he/she could give you some est cost per sf building prices for a normative market price house for your area of focus...

I do build and hold as I can build "at-cost" and I buy usually "distressed" dirt and also subdivide to value add even before building...  This is an area of specialty for me... Being able to build NEW and hold is great IF the numbers work out for your particular circumstances...

Hope this little bit helps you evaluate things a little more clearly!

**Sorry for any typos!-- was typing faaaaasstt!

Best of Luck,,, Rob!

Brian Mathews · Answer

I used to work with a builder that did this .  He built specs years ago and sold a lot of them.   Then just built them and kept them.   He used cash, no loans and held them.   I think he has somewhere around 100 paid for rentals now.   He kept it very simple.   He had about 3 or 4 plans he built over and over.   Nothing fancy.  3/2/2.   Basic rooflines and interior.   I think he's pretty much retired now at 55.

Chris Youssi · Answer

Personally love this business model . We have rebuilt our company around this strategy and are knocking on 100 doors by year end with another 100 in the pipeline. We specialize in duplex and 4 families easy for exit strategies because upfront,  we always set them up either as condos or townhomes. Loads of information available on BP and many willing to help along the way.

Best wishes moving forward!

Gerald Marshall · Answer

Great insight.  Just last week, I had a similar conversation with my wife referencing subdividing one of out properties that sits on a large lot.  No HOA or restrictions.  Tying into the existing water hook-up to save on that large hook-up fee.  It would also mean that I would have to pick-up the water cost since it would be feeding 4 properties. (estimated).  With already owning the land, I can build a no thrills 3/2 1321 sq.ft. structure for 68k - 72k with me being the GC, (past career).  That residence will support a $1200.00 rent in this area.

Rob Harris · Answer

@john Mc

@John McAuley - No problem! If you can legally subdivide and do so without getting to much push-back from neighbors whom may protest, then BUST THOSE LOTS UP and make some money man! - LOL

John McAuley · Answer

@Rob Harris, great insight man.  I really appreciate it.  One of my best friends is a small home builder but he builds to sell immediately.  He builds the exact type of home I would like to use as a rental, so he is very experienced in this area for these type homes.  He has offered to set up an agreement where I basically pay him a salary to be my GC for a build and I've known this guy for many years so I have a level of trust with him.  He has been very honest with me about actual costs which has given me even more support for this strategy.  I see a lot of SFRs with 2-3 acre lots that have a lot of potential to carve out another lot or two from them.  The land would come much cheaper this way and I would have some cash flow from renting the existing house while I did the work for the other lot(s).  Anyway, my wheels are turning a lot right now so thanks for the help!

Sean York · Answer

Hey guys.  I'm a aspiring small niche developer in Houston looking to build & hold.  Currently,  I'm interested in building pocket neighborhoods (fitting 8-10 small homes approx 800-1200 SF per acre surrounding a commons area) or potentially building quadplex or townhomes on infill sites and renting vs. selling.  Any fresh insight given the state of the current market?

Account Closed · Answer

Followed this conversation- lots of good info. In markets with extremely cheap land like here in the Midwest I think it is super possible, and smart to do long term!

Kent Nielson · Answer

I'm wondering about that as well. Where I'm at it seems like the only way you can buy and hold is if you put a lot of cash down, or buy a duplex. Even the crappy houses are too expensive. I think building new would be a good way to lower the cost/mortgage and allow for higher rent. As well as a brand new everything that would seem to cut down on large repairs like ac units or roofing. Especially if you can do a lot of the work yourself. I'm fairly new but It seems difficult to cash flow on a single family.  I'm looking into building a spec home, but it almost seems smarter to build a solid home with a basement and turn the basement into an ADU. (Accessory dwelling unit). Basically an unofficial duplex, which the city encourages.

Anyone Build & Hold?

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