Why are builders constructing Build to Rent?

Question

I am building new construction.  I have built and sold off SFH. I have built some to keep for my own rental portfolio.  Everything I have built has been sold or rented before I had the certificate of occupancy.  My next build will be affordable townhouses.  I am looking down the road and trying to decide what I should build after that.  It is unclear if I should build and sell to retail buyer or investors?

In general, retail will pay more and want a higher quality product.

Build to rent is more utilitarian and they generally want a lower price.

It seems that I can make more selling retail than I can with build to rent.  All resources are scarce at this moment, land, labor & capital (I know it's a cliche).  Given that is the case, I can't  "make up the difference in volume".

I get the idea if you are Lennar and Blackstone will buy 100 unit neighborhood before it is built.

What am I missing?

Jay Hinrichs · Answer

I would talk to Roofstock this is where they are very strong.. I can give you a referral to one of the head of marketing for them if you like. I know they were interested in some new builds we are doing in the Orlando area.

there is only a handful of markets were new builds make sense for rentals .. in other markets land and permits are too high to make anything but MF construction non viable.

Lesley Resnick · Answer

I tried Roofstock and they were a nightmare to deal with for an existing home.  They could not get out of their own way.  I don't know how they are doing now.  From the time I started working with them until I pulled my house they lost about a 1/3 of their listing in Jacksonville.  Some may have been sold, but a lot just disappeared from their site.

There are a number of other companies doing build to rent here, but they are mostly turnkey and keep the property management piece, which changes the numbers.

Lesley Resnick · Answer

I would challange the idea that Investors are less diffiult than retail.  lol  I work with a lof of investors that are every bit as diffciult.  However, if there are fewer of them, it would be better.  I list my own on MLS, so my commision exposure is less, but I see where you are going.

Everything I have built has been sold or rented before I had a certificate of occupancy.  Pre-selling is a great idea, it is more difficult since it requires vision and paticiene on the part of the investor.

I would be interested in hearing how the buyer is funding the build?  I could see a buyer putting up a deposit, but could you get enough to move the needle?  Even with 20% down, that does not get you very far.  At least in Florida, using the deposits to build requres an additonal contract and lawyer or there could be signifiant risk.

We are opportimnistic in building.  The land is our gateing factor.  I have done a 4/2 1250sq ft no garage in an opportunity zone.  I have build a 2000 sq foot upmarket house.  I have build an under 180k 3/2 garage in a great spot in a C neighborhood.  My current builds are 1 sfh in the same up market neighborhood and an 18 unit townhouse community in a decent area.

I do it all.  My husband has a GC license and we have our own crews for most of the work, we sub the rest. Our single biggest challange at this moment is capital and evertything taskes so L O N G these days, the city, trusses, windows, etc.

Jay Hinrichs · Answer

i have seen that with the one off resales.. but the bigger package deals are really their wheelhouse.  just trying to help I dont have a dog in the hunt as it were.

Lesley Resnick · Answer

In full disclosure, I had to look up PITA buyer.  I thought it was a typo for PITI.  I have learned something new.  lol

I am building identical buildings.  There will only be 2 models in the 18 unit build.

I see your point, if I had only one buyer for build to rent.  I am just not sure how many organizations are looking for a $4m build to rent townhouse community.  If anyone is out there, feel free to PM me!  I have seen a lot more of the , "I want one build to rent and I will only pay 75% of retail, so I can BRRR the house."  That is a scenario I would like to avoid.

You make a good point on the warranty claims.

Jason H. · Answer

@Lesley Resnick. Have you considered build-to-short-term-rent?

James York · Answer

I’ve built and sold directly to first key homes as well as rented for a year and then sold to FK. They pay significantly more than retail buyers in my market. They won’t buy multi family which is all I’m building now.

Lesley Resnick · Answer

ADU, ah!  What a great idea.  Jacksonville zoning does not allow it.  The city has a huge landmass and there are still large tracks that have not been developed.  Some of the more interesting properties are in the historic districts and anything goes as long as it old.  This has led the city to allow a very conservative zoning structure to exist.  I expect as the affordable housing crisis continues, it will change.

Jason H. · Answer

Yes, the answer would be dependent on where you live and if you were looking to build/develop close to home, as opposed to developing in a true vacation destination.

The properties themselves would look no different than any other single family, unless you were building a SFR with an ADU/carriage house (then you might have two kitchens)

Lesley Resnick · Answer

I have not done multi family.  Seems like there would be a whole new set of hassle with the city and the building codes,sprinklers, firewalls parking. elevators.

I looked up Key Homes, they buy in Jacksonville. I am going to reach out to them.

Why are builders constructing Build to Rent?

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