All Forum Posts by: Jonathan Yeh

I've been considering the same idea. I have built two houses that we used as personal residences, so I know I could manage the project and do much of the work as well. There was a Video Podcast on BP featuring  Cameron Skinner who does new construction single family rentals

@Jonathan Yeh Honestly, if you are able to justify that the numbers would work, I think it's not a bad idea actually. 

ONE THING: Yes, you may not have to worry about CapEx right in the beginning but if you plan to stay in the REI business, CapEx is an ongoing element. So, there is no need to avoid it, as it will happen over time even with new construction.

@Jonathan Yeh Another thing or two I didn't mention.

Research the neighborhood and find out what kind of tenants you are likely to get, what kind of PM you can get, and the rent per square foot. 

Generally in the 4 markets I am currently in, the worst case scenario is rent is $1.00/sf. My best is $1.43 and average is $1.12sf. I paid on average $1.52sf. 

Someone else said you get better value for smaller footprint houses, I totally agree with that statement. 

So if you are going to use a builder to build a home you design, can you build a duplex?

Bottom line is do your research of the market and return. If it makes sense and cashflows, you're ahead of the game.

@Jonathan Yeh

So I may not have gone the best route with my first 5 SFH. The first one was new build; bought direct from the builder, we bought it to live in. A few weeks after moving in my wife said she needed a bigger house....didn't want to sell it to take the loss, so fell into being landlords and have had the same tenant since we moved out in 2016. At the end of the year I thought I needed to get another one and bought in a nearby subdivision from a major builder who was trying to clear stock after a bad year in sales for them, so got a great deal. Had an immediate renter who's been there ever since. We liked it so much we had them build another one up the street for us for about the same price. 2 years later we bought another new build in the same neighborhood, and another new build in a different neighborhood. They've been going well. The numbers work for around a 5% return. Not making me a millionaire, but like you mentioned, little or no capex. I've had 2 AC repairs, 1 ceiling fan which I replaced myself, and I put in 4 power outlets for the longest term tenant.

I like the neighborhood, it has a good school district, everything is new, close to the highways, and attracts a higher quality tenant and higher rent. The AC units are not in cages, that's a good sign. Easy to offload too since they are in the desirable area.

So bottom line, would I repeat these 5 purchases? As I get more experienced, probably not. They are a great, safe way to ease your way into this. I'm very happy I have the ones I do as they are cash flowing with low headaches (capex). In fact, the biggest headaches I got, were from my property management company just being useless, incompetent sacks. 

One point I saw mentioned was the 6-8 month delay with no return. When you buy a new build, in my experience with a bigger builder, I put down $5K I think it was, and not another dime til they handed me the keys. So return wasn't the issue, there was just the cash flow delay. And then there's the other part of 15-20% down, or around $40K in my deals. 

Others are building portfolios faster doing flips BRRRRs, etc. There's a lot of variables, mainly how involved do you want to be vs how much do you have to be based on finances. 

I would recommend doing it, especially as a first property. Good luck

@Jonathan Yeh it is interesting that on BP you don't hear much about new construction. People are quick to jump in and say "BRRRR is better". The interesting thing is that in my city, there are are thousands of new units added through new construction every year. I know several investors who only do new construction. In fact the largest apartment owners in town only do new construction. These people are wildly successful who are renting to A class tenants.

So it begs the question, if so many successful people are doing new construction, why is it hardly ever discussed on BP? I think the answer is that most of the large operators doing new construction are not on BP. They are operating at a higher level. BP is mostly beginners, mom and pops or rehabbers. 

So to answer your question, there is nothing wrong with new construction. Expect a smaller return, but higher class tenant and lower expenses.

There is many paths to success in real estate. 

Where i am in in Michigan, new construction is at 200$ per sf. I would be very very wary of anything that you believe will cost you under 100$ a sq. ft. Also, per sq. ft pricing can be very tricky. Having more bedrooms will bring down your sq. ft. number but the real cost of a structure lies in the foundation, kitchen and bathrooms. 

@Jonathan Yeh, I recently attempted to buy a new build in a subdivision as an investor.  It did not go well (ie I didn't do it).  What I found was that the company I was buying from REQUIRED upgrades of a certain percentage and didn't allow me to just go 'basic' across the board.  In addition, my business model, 100% tile floors, was an extremely expensive upgrade.  Far beyond what I would pay if I took a standard floorplan and then demo'd it myself.

I probably won't be looking for new builds in the future due to my experience.  It's a great idea from maintenance, but that is about where the buck starts & stops.

AG

At $85/SF, that seems like a good rate for more SF. What was the $/SF for the first 1400 SF? If you paid 90/SF for the first 1400 then 85 isn't that exciting and I would hope you can get a good bit more rent for it. Otherwise you might get some equity but mostly your payment just goes up. 

Speaking of equity, what are comps like? If most houses are 1400 SF, you are devaluing your $/SF. You could be spending $30k to get 30k of value (break even). And if it doesn't cash flow better, it's a waste of money. But if houses are 2000 SF, then you'd likely be fine. That sort of thing.

A duplex is a pretty significant shift. I'm confused how you might just decide halfway through the project to have a duplex? It's an entirely different floor plan and design. Electric/plumbing is way different. It's a whole different project. Also, is it even zoned for duplex? If not, probably a dead end. If it is zoned for duplex, and you are building to rent, I would start with a duplex in the first place. Unless you want equity. then a SFR might be better in the long run.

Something that no one else has mentioned, here in my market (Illinois) taxes for a new build would be 2 times as much as buying an older house in rent ready condition.  

@Jonathan Yeh

Starting with a sprint!!!!! It’s a risky venture being your first. If u can take on the risk (loss of time, money, sanity)......do it! Two possible outcomes if you r ok taking on the risk:

1.) it works, u learn A LOT, and apply what u learned to your next one.

2.) it doesn’t work. Totally fails. But u learned EVEN MORE than u did in first scenario and can apply what u learned going forward.

Win win.

-Justin