By; Mike Kalis



The real estate market has been on fire for the past few years with a shortage in housing, rampant inflation, and changes in generational housing preferences. But one thing has stayed the same– real estate continues to be a key component in investment portfolios, particularly rental properties.

But, buying a rental property during a seller’s market and increasing interest rates isn’t always easy. We’ve uncovered a few simple hacks to help interested investors buy multiple homes at 20-25% less than the going market price for a comparable property. By maximizing value and getting creative on where to cut costs, you can build up your rental portfolio at a fraction of the cost.

This article will explain why rental properties have been a proven investment and why building properties can unlock significant savings. Then we’ll get into three specific ways to build your rental portfolio– literally.

Why Renting Out Properties is a Great Investment

Real estate has been a key part of how the wealthy have become – and stayed– rich for decades. Here are a few reasons why:

●     Property values are a hedge against inflation.

●     Real estate is a simple vehicle to leverage your money. You only need 20% down to get the title to 100% of the property.

●     With the right tenants, it’s truly passive income.

●     Rental Homes creates a nice cash flow that often increases significantly with time.

●     Real estate income has tons of tax benefits– meaning you will pay few or no taxes on that income.

●     Properties pass through inheritance for largely untaxed generational wealth building.

Add to the list that it’s often a flexible asset that can be sold when needed (in the right market). These reasons are the basis of wealth building through owning rental properties. So let’s get into how to do it for less money to maximize your return on your investment.

How to Maximize Real Estate Investments

It may sound like magic, but making money in real estate is all about working with professionals, getting clear on what’s really possible, and focusing on value. Of course, not all builders are focused on maximizing value for rentals, but there is a predictable sweet spot that you can capitalize on.

Here’s why it’s a great time to do it:

●     The housing shortage continues.

●     Many Millenials either prefer to rent or can’t afford to buy a home– lots of people are looking for homes.

●     Interest rates are going up, but they’re still relatively low.

So how does this all work?

Create your own version of what proven builders like DR Horton’s Express line have done. By getting land at the right price, building floor plans with the best value, and partnering with the right trades.

Why Build to Rent Instead of Buy Existing Homes?

While it’s certainly a viable investment to buy existing homes rather than building, there are a few reasons why a building can increase your ROI.

1. You have better control over costs. Buying property and then controlling the timeline, materials, and floor plan of your build can help you level out the market prices of existing homes.
2. You can customize your build to attract the best renters. The biggest fear of most landlords is having their property trashed by their tenants. You protect your investment by custom-creating a space designed to attract the most qualified renters.
3. You don’t have to worry about renovations. Most real estate investors trying to save money will opt for a fixer-upper. But this can land you in a money pit that doesn’t always have great ROI, not to mention the time you’re paying a mortgage without a renter in the home.

Now let’s get into three critical points to build your rentals properly so you get a 20-25% reduction in overall costs.

1.   Buy Land at a Great Value

This means buying land that is at a below market price. That might mean branching out into less obvious or underdeveloped areas. You’ll be sending out tons of offers— it’s about casting a wide net. Expect a lot of “no’s,” but the yeses will pay out in spades.

There are some special considerations, too, like:

●     How much work will landscaping or clearing the lot require?

●     What is the proximity to existing water and sewage connection?

●     What would be a reasonable property tax estimate for the area?

There’s a lot you can learn online about these things, but it never hurts to partner with real estate investment experts.

2.   Work With Value Engineered Floor Plans

Again, this isn’t about striping costs entirely– it's about focusing on models that will have a great return. Floor plans that are easy to build, make sense for prospective renters, and maximize the available square footage.

Building a rental empire requires hands-on experience, humility, and the ability to say “no.” Spend time on build sites as much as possible so you can learn what it really takes to build a reliable property. Ask lots of questions of your trades and be ready to say “no” to all products that are increasing costs that a resident wouldn’t pay more for.

Remember, most vendors want to sell you the most expensive materials and appliances they can, even when cost-effective options will cover the job. Over time you’ll develop the confidence to know when a vendor is selling you something that doesn’t align with your value maximizing goals.

3.   Work with Great Tradespeople

Finally, your team of builders, contractors, and tradespeople will make the difference between a great plan and a great reality.

While there are a lot of qualified contractors and tradespeople, not all of them specialize in maximizing value. For example, luxury builders will not have what you need for build to rent.

Instead, drive around the build sites of large production home building companies like DR Horton and Pulte Homes. These are the home building companies that boast a 20-25% margin, so they partner with the trades that know how to maximize value.

While at these sites, document the information of the trade’s names and phone numbers. They can often be found on the side of the trucks parked at the site.  Then call them and work out your own deal.

Ready to Make Money in a Hot Market?

At Great Lakes Investments, we provide limited investment opportunities for accredited investors with strong moral values who are looking for exposure to build to rent in the hot West Michigan market. If you would like to learn more, click here.

Mike Kalis

References:

https://www.investopedia.com/articles/mortgages-real-estate/11/key-reasons-invest-real-estate.asp

https://www.mymove.com/buying-selling/guides/millennials-renting-works/