New construction rental properties. I know, is your mind blowing? That's today's show let's dive into it
Hey, everyone. I'm Clayton Morris
I'm the founder of Morris Invest, long time real estate
Investor and most of the properties that I've purchased over the years in my rental portfolio have been
Older homes, you know 50, 100 years old. Maybe if you added up the bulk of my rental portfolio. It's probably
Probably goes back to before Jesus. Whatever that was.
You know, hundreds of years, right? It goes back to the medieval times if you add up the combined age of my properties
But that's okay right old properties are great because they're going to be here long after we're we're around
You know? Ever heard the old saying,
"hey, they don't build them like they used to?" that can be that can be true for a lot of those older homes especially if
They were built in the early
1900s when they had those beautiful old foundations. Yeah, they get a little seepage from time to time
But you couldn't drive a tank through those things
So I will say that the bulk of my portfolio is older homes that I've renovated you know putting new mechanicals updated with new windows
new furnace, new water heater, new electric through the pole, property new plumbing, new roof
new cabinets, new flooring, new bathtub, all of those things right, so it feels like a great new house
but
one of the things that is alluring
And it's very interesting is the idea of new construction. That is, properties that are literally brand new
Working with a builder and building them
But the reason I'm so excited to talk about new construction today is because I've actually delved into new construction with my team now
I've got a great team
So I would not say just to go try this at home if you don't have a great team
But my team is fantastic and of course I've we've rehabbed thousands of homes together
So I know my team, I know our group. And I know what we're capable of so last year. I said "I have an idea-
what if we were able to acquire some city lots and
then start to build upon those lots and
And and start to do exactly what we do on our normal houses have them look similar to our other properties
But have them be brand new what would that cost?"
well over the past year my team and I have dove into those numbers we've
had multiple meetings
back and forth with our head of construction
different materials teams
Trying to figure out exactly how we can zero in on a price that would still have a really high ROI
when we're done with it, but wouldn't be overpriced and ridiculous where it'd be too costly and people couldn't get into the property and
where we could build an existing neighborhoods.
Right here. We are two more lots. These are two that. We're building side by side on the street with established properties all around us
but here's one and here's
Two and the cement slabs go in tomorrow on these. Come on, let's take a little tour.
So here is one of the new construction plots and the slabs about to go in on this tomorrow
So we had to do all stake surveys all throughout here and the piping
The lines are already in that this will all be all the cement slab tomorrow
When you're considering looking for a new construction because a lot of investors are like you know, "I don't want a house
That's 100 years old." Fine. So be it. Well, how about a house that's brand new would you like that?
Great, so well, then where do you will look for these? This is really important so step one: location, location, location.
Now I'm not talking about finding a new construction property in San Diego, California where you're going to be paying
1.5 million dollars for a single-family home and you hope that if you rented it you might rent it for
$4,500 a month
Great then when the recession happens and that A class neighborhood
you know my theory
and you know my my plan you want to avoid A class neighborhoods at all costs, right?
What happens in a down economy?
do you think Jimmy Bob the
corporate, you know, the corporate lawyer or whatever who's renting your property for 4500 bucks a month
when he's out of a job
and the economy tanks now that house is going to be able to rent for 2500 bucks a month and
you owe 1.4 million dollars on the property?
that's what happens in a down economy in an A class neighborhood, so
Would you buy new construction rental property in?
San Diego, California?
No flippin way. No, you wouldn't. Of course you wouldn't. Now where would you buy it?
Well would you here's an idea what about on the outskirts of Dayton, Ohio?
Would you set up and go outside of Dayton, Ohio into a brand new suburb that's not even built yet, maybe it's still a cornfield and
You're going to build
25 Properties side by side by side by side
Nope the answer is no, you wouldn't why?
Well because you're artificially creating a market what you're doing is back in the day be known as blockbusting or are building a subdivision
but you basically come in and build an entire block and
Or build an entire subdivision, and you're sort of artificially creating your own market
That's not what we're talking about what I'm talking about is building new
construction homes that we build in
Areas where there are existing homes next door.
So for instance on the houses that I own and run in Indianapolis and other parts of the country in Michigan in Florida
There might be a vacant lot next door
Great. What do we do with that?
Let's build on it. So I'll purchase, you know, our team will purchase the property, will buy the lots, then what we'll do is
We'll we have our blueprints with our construction team, and then it'll take us
You know six to eight weeks or so to actually go from the ground up and build a brand new structure on that property
Pour the you know pour the foundation
Frame the house, put in the electric, put in the plumbing, put on the roof
and frame out the house, put up drywall, build the cabinets and everything else and
It's a fantastic fantastic solution
so I've loved-- I mean this is why you would look into doing new construction because you have the opportunity to come into an
established neighborhood
build a property and
then reap the rewards of that property in an established neighborhood in school district and areas where you might already have some other rental properties
See where we've done these new construction properties, and we did it on a small scale. We did 20
I know that you might be saying well, it's a lot. We started with 20 and
We rolled them out to our VIP clients at Morris Invest
We kind of quietly told them about them
And it just started
Snatching them up left and right. And guess what? They weren't that much more expensive than our normal bread-and-butter
properties that are in that 40-50 thousand dollar range. They were just a little bit more
the ROI is going to be a little bit lower, but that's okay because you're getting a brand-new house and
We're able to put a long-term tenant in there for two years
so there's some upsides and downsides you're going to
Probably pay a little bit more and so your ROI is going to go down a little bit
but our goal on every property is 10 to 12% ROI
so if it drops down to 8 to 9%
Roi is that really terrible at the end of the day? Net ROI when you're getting a brand new house?
No, it's not. So I I kept a bunch of them in my own personal portfolio
These are the newest properties that I own and I'm going to try to
Probably do about two a month keep in my personal portfolio, Natali and I
Because I think it's it's great to have a few of those peppered into our properties that are you know 50, 60, 100 years old
You know and you also then get the benefit of raising the boat of the entire neighborhood.
That's another great benefit of this. Which is, now the houses that I own on the same streets that are older and rehabbed
they're the values of that entire neighborhood are elevated because now we're bringing in brand new construction and
changing a whole city. We've met with the
You know we've met with the mayor's office, and they're just thrilled about what we're doing
Which is wonderful, and it's a great feeling to be able to come in not only when we're rehabbing houses, but then of course
Bringing in a new tax base. Really able to help this neighborhood by putting in new construction on these empty lots
Or where we took
fire damaged houses and tore them down and putting on new construction right on top of that, so it's a great feeling
So a couple of reasons you would want to buy new construction or where you should buy new construction number one again: location, location, location
making sure that of course if you're buying new
Construction that it's not in places that are over
That are going to become too costly and your ROI is not going to be there. Remember my rule
That if you start to go above 125 to 150 thousand dollars in value that your rent is
Not going to keep up with that number. So even if you're able to get a new construction home in 125
thousand or 150 thousand dollar range
Remember that the rent is not going to keep up with the value of that house
If it makes you feel warm and fuzzy at night to have something that's costlier, and you're getting less rent. Great, good for you.
Not my bag.
I think it's a mistake on the investment front
And I think you're getting a lower bang for your buck on ROI - your return on investment, so I would stay away from that.
Number two: another great reason that you would want to pick up new construction is because all the warranties and
Look, everything you know when you get a manufacturer's warranty on a water heater and a furnace. They're brand new
You're getting a 10-year manufacturer's warranty on those. The new roof, you've got 30 years. You know, 30 years on that
Also for like for instance with our properties, you know we're guaranteeing
Maintenance for two years on it. So that's another great reason. Plus, we're also placing a tenant in there on a two-year lease
So you get all that fresh. You know it's that fresh feeling
It's that new fresh car that new fresh car feeling. It's not for everybody, again. It's not.
if you have an established
plan where you're picking up older properties at a
Slightly reduced cost where then you are also getting a high ROI this might not be for you so again
Those are some of the reasons why.
Number three is
Really sticking to the basics. So number three with our rental properties our new constructions, the beauty of new construction
Is that you're getting
You're getting something from the ground up, so you're able to build from the ground up and our team
we're able to like do it down to the nuts and bolts, so
Everything is accounted for and there are not a lot of variables. We're able to meet with our head of construction
We know exactly what's going. How many pieces of wood, how many pieces of
Drywall we need. We know exactly how many floorboards, we know exactly what foundation cement
We're pouring. We know how many outlets. We know how many faucets, all of those
Variables that you might get in a rehab home when you start ripping out walls are gone
Because it's literally here's the blueprint. Here's the amount that we ordered. Here's the lumber that we ordered
Here's, you know
Here the floor joists that we ordered, here are the beams that we ordered, here's the slab the drywall that we ordered
this is exactly the pieces we need and then we build the property and
there not-- there's no variables
We can basically know down to the screw and the nail how much we're buying in order to build that house
so there's not a lot of room for
variables, and sometimes in our older houses when we start ripping out walls and ripping down drywall
Hey, you know you're going to discover some things and of course we always take care of it
But these variables that you just don't think about sometimes when you start getting involved in older construction
You know it's it's not something
I really am worried about
But I love the beauty the simplicity of the fact that if we're building 20 properties and my construction crew is building 20 properties
We know exactly how many materials how much materials we're spending
in order to buy those properties
And build them. So a couple of great things to think about with new construction
It does have its benefits some of the downsides of course are that you're going to be spending a little bit more
because you're getting that brand new fresh car smell. Your ROI will be a little bit lower
but over time you're also going to have the benefit perhaps of that appreciation and
You're going to be, you know, floating the boat of that entire neighborhood. You're elevating other properties that you even may own in that neighborhood
You're going to command a higher rent also. That's another great benefit of owning new construction
Typically a tenant is going to be willing to pay that additional hundred
Maybe even two hundred dollars a month because it's brand new construction. I'm talking C class neighborhoods here
I'm not talking A class. C class
Neighborhoods tenants are willing to pay an additional hundred to two hundred dollars a month for a brand new property so you get that benefit
Too which would offset some of that are ROI differential
again some great benefits to owning that and
And I can't speak highly enough of it, so I'm excited about it because well
I hope you can tell I'm excited about it's been a bit of an experiment with my team. You know we've we've done so many
Older homes
It's been exciting to go back, draw up the blueprints with the construction team over the past year,
Iron out all of the details, really make sure that we're providing a great house, but we're not
you know we're not putting a
$200,000 house
On a on a C class neighborhood plot of land. We want to make sure that we're building a house that's
representative of the neighborhood, and that's been incredibly challenging, but also incredibly fun.
So there you go the benefits of new construction for a rental property
I would love to hear your thoughts about this and what maybe you own some new construction
Rental properties, and I'd love to hear your numbers on that, please subscribe to our channel here
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Well, it is the witching hour
I decided to do this show tonight outside because it is a gorgeous evening and I think the bell just tolled at the nearby church
So much love to all of you now
Go out there become a real estate investor and take action, everyone. We'll see you next time, much love.
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