Invest for a Wealthy Future: How Downtown Build to Rent Creates Financial FortitudeJun 07, 2023
Investors - want to love what you invest in? Ready to explore a real estate strategy that not only generates long-term wealth but also creates resilient communities and leaves a lasting legacy?
Welcome to the world of urban Build to Rent (BTR) investments, where vibrant mixed-use buildings and up-and-coming downtown markets come together to offer remarkable benefits.
Picture this: stunning residential lofts nestled amidst a bustling and growing downtown, with a perfect blend of retail, studio, office, and living spaces.
It's not just a pretty picture - it’s a smart investment with substantial advantages. Here’s why…
The Fundamentals of Build to Rent Investing
What is Build to Rent?
Build to rent is a real estate investment strategy that involves the development of purpose-built properties, designed specifically for the rental market. BTR is all about using ground-up construction as an opportunity to cater specifically to the preferences and needs of your rental market. Unlike traditional real estate investments that involve new construction, where properties are often sold individually, BTR focuses on creating an entire community of tenants within a single development.
The Rise of Build to Rent: Trends and Market Outlook
The outlook and demand for rental housing is a strong bet, as millennials and young professionals keep opting towards renting over buying to fit their lifestyle and budget.
And as urbanization and downtown revitalizations are sweeping through towns across the country, BTR really starts to shine!
Instead of scattering single-family homes across the landscape in a typical suburban sprawl development pattern, build-to-rent supports a more sustainable model that uses existing infrastructure on a smaller footprint, while creating a greater abundance of housing options. Think one unique and funky boutique loft building that houses the same number of people as 20 single family homes. It requires far less space and takes fewer resources to build and maintain, making it the more sustainable choice.
Build to Rent Case Study: The Dechiro
Mixed Use and Multi-Purpose for Maximum Population Density
The Dechiro is a mixed use building with 20 studio lofts and 3 commercial storefront spaces that can become one space or divided into 6 spaces. The property has mixed-use zoning, so the units can be used for any combination of residential lofts, creative studio space, office or retail space.
Additionally, the units can be used for long, medium, or short term rentals. They could even be "condo-ed and sold individually."
The Dechiro is a three story, nineteen thousand square foot building on a half acre. We purchased two lots, one vacant and one with a single family house that we relocated. We increased the density from that 1 unit to 23 units.
Our first tenant took occupancy in September of 2020. It took us 12 months to reach 100% occupancy in both the residential and commercial spaces. Since that point we have averaged 97% occupancy.
It hasn’t all been sunshine (it never is), but we got the important things right! The right product, right market, with the right design features. We made sure that the building was unique and beautiful fit for the neighborhood, inside and out. Most apartments you walk into looks like every other complex you've ever seen. That is not what the downtown tenant is looking for. They want their space to be an extension of their personality and represent their creative side. They want natural and quirky finishes, and we splurged on high impact design features to tell that story.
With its prime downtown location, diverse tenant mix, and abundant amenities within arm's reach, The Dechiro embodies the very essence of urban BTR projects. The benefits of steady cash flow, market resilience, product uniqueness, and lower maintenance costs make BTR investments an attractive option for savvy real estate investors.And the maximum flexibility of downtown mixed use zoning provides resilience for your investment portfolio in an ever changing market.
Advantages of Build to Rent Investing
1. Steady Cash Flow
One of the most enticing aspects of BTR investing is the promise of a reliable and consistent rental income stream. With a well-executed BTR project like The Dechiro, your tenants become part of a cohesive community, fostering long-term tenancy and reducing turnover.
2. Demand and Market Resilience
The rental market remains resilient even in uncertain economic environments. By catering to the growing demand for rental properties, BTR investments present an excellent opportunity for long-term stability.
3. Lower Maintenance Costs
BTR developments often come with the advantage of new construction and shared amenities. New construction lowers maintenance and repairs. In the case of The Dechiro, the downtown location offers a wealth of amenities right at tenants' fingertips. This eliminates the need for extensive on-site facilities and reduces maintenance costs, allowing you to maximize your return on investment.
4. Diversification and Risk Mitigation:
Here's my favorite part and personal specialty - you can further diversify your build-to-rent portfolio by building mixed-use buildings that combine retail, office, and residential units. Spread your investments across different asset classes and a diverse tenant mix all in one building, while designing more walkable, livable, and workable towns and cities that mirror those Old Town Squares you get nostalgic about when you drive past the newest Walmart Supercenter with its dedicated exit off the interstate… Okay, rant over.
Key Considerations for Build to Rent Investors
Location, Location, Location: Identifying High-Demand Rental Markets
Location is the name of the game in all real estate investing and BTR investments are no different. You want to be where demand is hotter than a Texas summer :-)
Look for high-demand rental markets with annual population growth; a strong, diverse employer base, and that "vibe" that makes it a place where people want to spend time.
In downtown Bryan, TX (my hometown and market of choice), the town caters to Texas A&M University (my alma mater). There's a steady supply of professors and university-employed tenants for my residential units, while that same population fuels the economy throughout the year for my retail and office tenants. The city is actively investing in the area, making it appealing to pedestrians, residents, businesses, and visitors.
Amenities like neighborhood gyms, groceries, salons and spas are popping up in walkable proximity to my investments, eliminating the need for me to create those expensive amenities onsite. Instead, every square foot in my buildings can be rentable space.
Understand Your Tenant
The key to building dense housing options that residents actually prefer to live in is tapping into the unique features your market demographic wants.
Before our first development project, Renovation Wranglers commissioned the Texas Real Estate Research Center to conduct a study to determine who wants to live downtown and why. The results confirmed the migration trend of people relocating to small and midsized towns, seeking a sense of community and a higher quality of living.
It also helped identify what the downtown dweller wanted in housing and community. As you can imagine, it's different than what the suburban dweller is seeking and guided all of our design, staging, and marketing decisions.
In any real estate investment, truly understanding the end user is key to lasting success.
Navigating Challenges in Build to Rent Investments
Regulatory and Legal Considerations in Build to Rent
Before you ride off into the sunset, make sure you’re on the right side of the law. Get yourself familiar with local zoning regulations, building codes, and rental property laws.
In an urban market, this will involve negotiating and working with your city government.
For most investors, this is the barrier that prevents them from diving into the world of downtown development. “The city” feels shrouded in mystery and misery. But once you get the hang of it, the key players you need to team up with become clear!
Check out this handy breakdown of a city’s basic organization that makes it easier to identify the key players in your development project:
Your Build to Rent Team
Beyond city government workers, you’ll need to find teammates like civil engineers, architects, and contractors to keep your project timelines moving.
To streamline this process, we started our own construction company, Renovation Wranglers. We hired a superintendent to manage the day-to-day work, while my partner and I take on the most essential role in any development project: project management.
Managing project timelines and deadlines; maintaining a clear line of communication between key players; keeping your eye on the big picture and on the budget - if you have these basic skills as an investor, you can 100% break into the build-to-rent market, even with larger multifamily and mixed use projects.
When you choose the right market and nail down exactly what your ideal tenant wants, build to rent can be a golden opportunity to find steady cash flow and appreciation in this tumultuous market, especially in quickly growing, small to mid-size downtown markets.
And if you find a market you love the way I love downtown Bryan, TX, you can combine your passion AND profits - enjoy the fruits of a diverse, resilient portfolio; build a thriving town; and act not just as Mr. Money Bags or “the developer,” but as your town’s advocate.
For a full breakdown of what it takes to break into downtown development, grab your free copy of “The Rookie Roadmap: 5 Steps to Kickstart Your Real Estate Development Journey.”
Happy Investing, y'all!
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