Considering dipping your toe in build-to-rent? Here are a few things to keep in mind.
• Understand the market: Investors are hungry to get on board, and there is a lot of capital to be invested, says Dennis Steigerwalt, president of Housing Innovation Alliance. They’re going to be looking to build long-term relationships with the right local partner who can move the entitlement process, who understands the vertical construction piece, and who can optimize to eliminate wasteful construction inefficiencies. Once the project is completed, they’re also going to need a solid partner to operate the asset.
• Stay where you know: Investors also are looking for boots-on-the-ground knowledge. Operating in areas where your company is familiar with processes will ensure you’re dialed in, Steigerwalt says.
• Consider your lender: Lenders will likely see this as a great opportunity because the builder can deliver a community faster by building all at once, Steigerwalt notes, but if you can’t get the capital structure set up, you’re either using too small a lender or you have too much debt to equity.
• Educate the community: Rental projects can create a NIMBYism hurdle in some areas. You’ll need to spend time educating the community on the nature of the single-family rental as well as the assurances that come from having property management.
• Educate yourself: Mitch Rotta, director of new construction at Tricor Contracting, cautions newcomers against thinking that build-to-rent is just like multifamily, where you can create a separate division and stuff the property with amenities. At the end of the day, it needs to be about providing a product that’s missing at a price point that meets demands of the area.
• Remember long-term costs: Consider the long-term efficiencies as you are weighing product options. For example, upgrading appliances to models that require less maintenance and last longer will reduce the need for future replacements and repairs that are on your own books. The same can be said for surfaces, particularly flooring. A premium laminate is easier to clean and maintain, while carpet will need to be replaced more often between renters.
Spending a little more on high-quality paint designed for high-traffic areas may cut back on repainting between tenants. “Create a product people will be proud to live in but at same time minimizes [your] repair and turnover costs,” says Don Walker, managing principal and CFO at John Burns Real Estate Consulting.
• Maintain impeccability: Part of avoiding rental stigmas and NIMBYism is preserving the aesthetic and integrity of the community. Ensure the exterior properties and community amenities are well maintained. The investment in extra maintenance and management can pay off in lower turnover rates and fewer headaches.