For over two decades, I focused on acquiring and renovating older rental properties. This experience taught me valuable lessons, but recently, I made a significant shift towards new construction or build-to-rent (BTR) properties. This transition has been a game-changer in my investment strategy. In this blog, I’ll share the details of my latest project in Seneca, South Carolina, alongside my builder partner Eric, as we explore how we identify, finance, and construct these properties.
Understanding the Shift to Build-to-Rent
Why the shift from buying to building? The real estate landscape is constantly evolving, and the demand for rental properties is soaring. New construction allows for a tailored approach that meets current market needs while maximizing returns. Eric and I discussed this at length, particularly how our latest project highlights the benefits of building versus buying existing properties.
The Land Purchase
Our project began with the acquisition of a little over six acres of land in Seneca. The purchase price was $128,000. But what made this land attractive? Here are some key factors:
- Location:
Situated just seven miles from downtown Clemson, the property is positioned in an up-and-coming area that has seen revitalization efforts, including new shops and restaurants.
- Zoning:
The land is zoned R-6, allowing for 6,000 square foot lots, which is essential for maximizing density.
- Views:
The property boasts beautiful mountain views, adding to its appeal for potential renters.
Location is crucial in real estate, and investing in walkable areas near town centers like Seneca enhances property value over time. We believe that as downtown Seneca grows, so will the value of our properties.
Calculating Potential Lot Yield
Understanding how many lots we can fit on the property is fundamental. With six acres, we calculated that we could theoretically fit around seven lots based on the zoning regulations. However, practical challenges such as topography and existing infrastructure must be considered. For instance, while we could potentially fit 44 units, the reality often means fewer due to these constraints.
Topography plays a crucial role in development; our land has a 30-foot elevation change which requires careful planning. Additionally, the existing road frontage and utilities, including sewer and water, make this property even more attractive.
Ideal Characteristics of Development Property
When looking for ideal land for development, here are a few considerations:
- Topography:
Ideally, the land should be relatively flat to minimize grading and excavation costs.
- Infrastructure:
Existing utilities and road access save significant costs and time during development.
- Market Demand:
Ensure the area has a growing population and demand for rental housing.
These fundamentals guide our investment decisions and help us identify properties with the best potential for success.
Strategies for Acquiring Lots
Finding the right lots can be a challenge, especially in older subdivisions where lots may have been sold but never developed. One strategy is to identify and negotiate for these vacant lots. Additionally, understanding zoning regulations can lead to opportunities in established neighborhoods where larger lots can be subdivided.
Infill lots—properties in already developed areas—are also a great opportunity. These are often overlooked but can yield significant returns when developed properly.
Navigating the Permitting Process
Once we finalized our land purchase, the next step was obtaining the necessary permits. This process varies by municipality, but generally includes:
Identifying local zoning laws and requirements.
Engaging with city planners and utility departments to ensure we can access services.
Submitting detailed plans for approval, including stormwater management and environmental assessments.
It's crucial to have a due diligence period in the contract to ensure that you can develop the land as planned. We learned this the hard way and now prioritize thorough research before closing on any property.
Funding the Development
Understanding where to secure funding is vital. Our project required a blend of financing strategies, including:
- Private Investors:
We partnered with private lenders for initial capital.
- Joint Ventures:
Forming partnerships can provide necessary funding and share risks.
- Traditional Financing:
Banks can provide loans, though they often come with strict terms.
In our case, we raised $170,000 from private lenders to fund the construction of the properties. This arrangement provided us flexibility and reduced the pressure of immediate repayment.
Designing the Properties
When it came to designing the homes, we aimed for efficiency and marketability. The homes are designed as two-story structures with three bedrooms and three and a half bathrooms, catering to both families and young professionals. Key design features include:
- Efficient Layouts:
Maximizing usable space while minimizing wasted square footage.
- Value Engineering:
Incorporating high ceilings and large windows to create a sense of openness.
- Cost-Effective Materials:
Choosing materials that balance durability with cost-effectiveness.
Our goal is to create attractive rental properties that appeal to a broad audience while keeping construction costs in check.
Managing the Construction Process
Managing a construction project involves coordinating with various subcontractors. Finding reliable subcontractors can be challenging, especially for small-scale developers. Here are a few strategies:
- Build Relationships:
Establishing long-term relationships with subcontractors ensures priority and reliability.
- Seek New Talent:
Partnering with newer companies can often lead to better prices and dedicated service.
- Volume of Work:
Maintaining a consistent volume of projects can help keep subcontractors engaged and motivated.
We’ve found that maintaining good relationships with our subcontractors has been crucial in keeping projects on schedule and within budget.
Evaluating the Financials
As we approach the end of our project, it’s time to evaluate the financial performance. We anticipate selling the homes for around $265,000 to $275,000 each, which, after accounting for development costs, should yield a healthy profit. Here’s a breakdown of our costs:
Land Purchase: $128,000
Development Costs: Approximately $210,000
Total Investment: Around $338,000
By selling the properties, we aim to recover our investment and create a sustainable rental income stream from the remaining units.
Conclusion: Embracing the Future of Real Estate Investment
Shifting from buying to building has opened up new opportunities in the rental market. The build-to-rent model not only allows for customization and efficiency but also meets the growing demand for quality rental housing. As we continue to develop our properties, we remain committed to understanding market dynamics and leveraging our expertise to create value.
If you’re considering a similar path in real estate, remember that knowledge is key. From understanding zoning laws to managing construction, every step is crucial in building a successful investment strategy. Join our community of rental investors at Rental Property Mastery and learn more about how to navigate this exciting field.
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