Quote from @Zach Matson:
I'm a builder and investor in Boise, ID. I'm currently designing my next builds, and want to make sure they are the most appealing and can make financial sense to investors. So, I have a few questions for those of you still buying single family homes as rentals.
1. How are you analyzing your deal and what is your goal when you are buying a SF home? Is it cashflow still(and how much?), or more for long term benefits and try to break even?
2. What is your strategy for renting... is it LT, MT, ST, rent by the room, or something else?
3. How do you value new construction as opposed to an older home that may look nice, but still older? Do you take into account that you shouldn't have any mainenance for at least 10 years or not really?
4. Is there anything that you have really wished you could find in homes that you don't see often that would increase your return or lower your expenses?
5. When you see a listing, does it help when the remarks are tailored toward investors? Such as ease of maintenance, durability, return on investment, etc?
6. Is there any other suggestions you have for me to adapt to the current market?
Any feedback is greatly appreciated!
A few of my ideas so far, that I'm starting to implement...
1. On houses that have small yards I have done artificial(but real looking, they've come a long way) grass. People have mixed feelings but it seems that investors love it at least.
2. My most recent floorplan has private bathrooms attached to each bedroom. This only increases my cost by maybe 5k(added a bathroom), but seems like it will be much more marketable as a rental. But, this did eliminate a family room upstairs, so the only living space is on the main floor.
3. HUGE primary en-suite with walk in showers and soaker tubs.
4. Model my homes and design after $1M+ dollar homes, but they are in more up-and-coming neighborhoods.
- So basically they are the nicest homes in the neighborhood, but the neighborhoods are very much improving around them.
5. I use upper mid-level finishes. Better than builder grade but not top of the line like on the high end custom homes. The result is a very upscale feel compared to other comparable price points typically. I.E. Good quality LVP flooring, Upper mid level appliances, energy efficient furnaces and tankless water heaters, semi-custom and now custom cabinets, quartz counters, and each home is professionally designed.
Hi Zach!
1) I think that depends on the market and the property. In my market (Orlando), it is tough to find high cash flowing properties to purchase without using BRRRR, unless you've already been living in them for a few years. But a lot of investors we work with are buying new builds because of the appreciation, despite the low cash flow. I won't sell my rental (former primary) for a very long time because it does cash flow, but since 2017 appreciated from $245,000- $~420,000 and cash flows $1,000 over the mortgage.
2) I personally like LTR, but the by room (Padsplit) has been really profitiable for a couple flippers I know who pivoted, started rehabbing their flips with Padsplit in mind, and it so far has been kind of a "best of both worlds" when it comes to consistent cash flow to cover the mortgages, but also generating higher cashflow with the by room model.
3) Generally, the new build approach can be great because of what you said-- minimal maintenance for at least the first 5-7 years. With that said, a rehabbed property could accomplish the same goal of being "Like new," which about 45% of renters who desire a SFR look for new or rehabbed properties.
4) Based off what I've seen with clients properties, I would say avoid carpet for rentals and don't buy the lowest quality products when renovating. Spending a little more money to get more durable materials will save you money in the long run. If you are looking for rental properties, trying to find ones with new / relatively new ACs and Roofs will help because those are the two big maintenance items. Not having to replace them for 7-10 years down the road gives you the ability to gain equity through appreciation, and then leverage the property to cover those repair costs.
5) I read listing comments with a giant grain of salt LOL.
6) One investor I know works with a builder and has his own custom floor plans (3 or 4 beds, 1500-2000 sq ft). He owns quite a few in-lay lots and his build costs in Palm Bay, FL are about $230,000, but the appraised value is around $310,000-$330,000. Once he places a tenant, he does a cash out REFI, does a cost seg study, and repeats. Since you are a builder, I wonder if you could do something similar in your area?
If you are building your own houses, don't forget to factor in renter preferences, and build your houses around the biggest percentage of the rentat pool. Here's the link to Zillow's Consumer Housing report, which has some great renter data. (https://www.zillow.com/research/renters-consumer-housing-tre...)
Good luck!
