Hey everyone, and welcome to Passive Real Estate Investing. I’m Melissa Nash, your guest host jumping in for now. Let’s dive in.
Welcome to the show, Steve. Now you are no stranger to this show, so I’m gonna give you a quick little intro to everybody. And then if you don’t mind, I would love for you to tell our listeners a little bit about your background. So you have been involved in new construction builds for a long time. So that that is it, that is your intro, that’s what I’m giving you. <Laugh> fill us in <laugh>, give us more, tell, tell everybody a little bit about what you’ve been NEP to and what you’ve been doing and why I have you here on this podcast. We’re gonna jump into that as well.
Perfect. Well, it’s good to see you. Melissa and I go way back. We used to work together and then I, yeah, I got into new construction in, in a variety of different states. I love new construction and you know, we’re, we’re here specifically today to talk about multi-family new builds. And, and when I say that, I mean two to four unit properties that are really good for individual investors because they have that advantage of a lot of the good things that an apartment building might have, but also the advantage of a single family. And it kind of marries the two. And I, I’ve just really enjoyed it over the years. I own many of them myself, and they, they do really great. And so I, I think I’ve developed in 1, 2, 3, 4 in five different states for duplexes, triplexes, and quads. And we’re gonna talk a little bit about the crossroads state Indiana today.
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Perfect. You know what, there’s one project that you did that I literally have the biggest regrets about. This was, I think one of your first projects in Idaho.
Oh, yeah. <Laugh>. Is this,
Is this ringing a bell? I remember analyzing those deals just kind of briefly and just kind of looking at it and going, wow, these are pretty awesome. And, you know, and it, it’s, it’s honestly one of the projects I have a big regret about because they went up in value so fast. And I was like, dang, 10 years ago, Melissa should have grabbed one of those up. So whenever you’re introducing a new market or a new project, I’m listening up and that is why I have you here today. I want everybody to listen up because Steve does his research. He is in markets for a reason. <Laugh> and his team is always excellent. So let’s dive into this, Steve, and let’s talk about this Indianapolis project.
Yeah, absolutely. I think it’s worthwhile to understand why, I mean, ’cause you know, I, I live in the Rocky Mountain region, although not for long gonna be relocating in the summer. And so why Indiana all of a sudden, right? And the, the story, I’ll make it quick and know, I don’t wanna draw it out, but yeah, Melissa’s right, IWI worked for a developer and we, we did tons of duplexes, triplexes and fourplexes in the Rockies and in Texas, she’s referring to one in Boise, Idaho that we did. Now, I will, I don’t want to take a bunch of credit here. The market was insane. If you were doing pre-construction anything from 2014 to 2022, it was impossible to lose you. You had to screw up massively. And so, you know, it, it, the, those deals had the benefit of those market tailwinds, but I think that the best part about it was they worked.
When you put those numbers out at the time for cashflow purposes, you didn’t need it to appreciate 40 or 50% in value, which many of them did. We’ll take that when we can get it, that’s great. But I never like to go into a deal planning on that happening. That’s a bad idea. And that’s what she’s talking about. And I bring it up because it’s a good reference because before that, I lived out in, in the Midwest in Indianapolis and worked for a company out there, met a few great people who I remained friends and contacts with over the years. And they were watching what we were doing out in the, the western US and said, Hey, we think that this could work well in our market. And at first I begged to differ because like you talked about Melissa, that tailwind, I thought, well, Indiana’s not a market that really goes up much.
It just kind of follows the inflation rate around. And that’s why these deals work so well is because they’re worth a bucket more of money. And yeah, they do cash flow, but you know, I, they, they were persistent because the, what came to their attention is they had done some redevelopment in a few small towns around Indiana. And this got the attention of a mayor up in the Fort Wayne, Indiana Metro, that’s the second biggest metro in the state. And the claim that this guy made was, Hey, look, we have a really low unemployment rate. We’re pulling people in from surrounding states, we’re pulling businesses in and people are commuting in from the border over in Ohio and they don’t really have a lot of great choices for where to live. So they persuaded me, I went out, I took a look, the mayor drove me around and he showed me the last apartment complex built in his city.
It was 1996, right? But I saw, I saw cranes and construction in downtown Fort Wayne. I saw economic activity and I started digging into it. And then it got even sweeter when the mayor told us, look, you can buy 15 acres from us for 225,000. We actually bought the acreage from the city, 15 acres for $225,000, absolutely bananas of a, of a price. And not only were they gonna do that, but they were gonna give us this five year tax abatement where in the first year of ownership, there are no property taxes. In the second year, they’re at 20%, the third year they’re at 40, and so on and so forth. So we ran some numbers on it and looked into construction options. You can’t, you can’t just drop into a new market. You, you know, you’ve gotta have a, a track record with the engineering people, the city and contractors.
And, and that takes time. Now, luckily my partners out there already were way down the runway on a lot of that stuff. And so we concluded, you know what, yeah, it’s, it’s not gonna appreciate like the west, although you never know, it’s, things are crazy right now, but it’s gonna cashflow a lot better than the west. There is just no way you’re getting 220 or 15 acres for 220 5K anywhere in the west that’s not, you know, three hours from the nearest stoplight. It’s not gonna happen. And so we got started, it took a long time. I mean, I think I, we first started talking about this in 2021. We closed on the land in 2022. It took a while to develop. We’re now just getting our first certificates of occupancy in the first phase. And so we’re putting units on the market to rent.
It’s like three degrees in Indiana right now. So <laugh> and it’s January, it’s a bad leasing season. But I love our Zillow analytics. We’re getting tons of views. We’ve got a bunch of showings this week. We even have a, a corporate tenant that wants to lease three of the units. So granted, you know, these units have not been on the market for very long and it’s the worst time of year. But I like what I’m seeing on marketing traffic and, and the whole premise of the business model here is Melissa, we sell them on a construction loan, pre-construction. So an investor closes, they own the lot, we pull from their credit line at the bank to build, and we help ’em set all that up by the way. And then when it’s done, they refinance into permanent debt. And normally one of the quickest questions that an investor would ask about that is, well, why would I do that?
Why don’t I just buy it complete? And the answer is because if you buy it complete, it costs like a hundred thousand dollars more at least. Right. You know, and that’s, that’s the trade off in real estate investing. Like how much headache do you want to take on? And you should get a return that, you know, matches up with that versus I don’t want any headache at all. You should probably buy a treasury bond or, or you know, like a triple net Walgreens or something like that. And so this is designed, I’ve kind of jokingly called it the armchair value add, where an investor, if they can click DocuSign and sign their draws, we build it and they do get that at a good little wholesale spread so that it makes the cash flow better. And you know, the cap rates on ’em are really great.
They’re, we’re in the high sevens and if some of my rent data comes in where it looks like it’s gonna come in, we’re probably gonna go north of eight. Additionally, the tax abatement that we have there, there’s been a lot of discussion with the city about when that would start. We were always assuming it started when we bought the land in 2022. The latest info I have, and you know, you gotta put an asterisk on this, is that the city probably won’t start it until early 2025, which means investors have a few more years of very, very low property taxes, which is great in an interest rate environment like this. You know, the rates aren’t too terrible right now. I mean, two years ago it was awful. I don’t wanna oversimplify it, Melissa, but if you’ve got a cap rate of 7.8% in theory and the interest rate on your long-term debt is six point a quarter, which is pretty reasonable for an investment property right now, you could get a little lower, a little higher depending on a few things. If you have those two things, you’re gonna cashflow really, really well, really, really well. So that’s like a high level intro on how we got here. And I don’t know, what do you think about that
<Laugh>? I I have a lot of questions. This is great. Thank you so much. Like I, I love how you just kind of walked us through the process, especially, you know, the tax abatement thing. I did have questions about that, that you answered. I wasn’t quite sure when and what that tax abatement was when it started, how it worked. So thank you. Thank you for answering that. So to clarify, so we’re talking about duplexes, triplexes, and maybe a fourplex, is that correct?
Yeah, we’ve got one fourplex left. It’s, you know, we, we started the sails and the, the construction at the bottom end of the development, the south side, we’re working our way north and it gets just a little bit skinnier at the top. And so the engineers couldn’t fit, you know, the size of building. So we go from fourplexes to triplexes and duplexes instead. And so we’re, we’re at that 0.1 quad left and last I checked, I think we had eight duplexes and then five triplexes left in the project.
Okay, perfect. Now what are the price ranges of these projects? I mean, and, and what does it look like if an investor comes in and they want to, let’s say they, they talk to you guys, they want to do one. Can you just kind of walk us through like, what are the expectations? Because you’re gonna help them take out a construction loan, you guys are gonna kind of handle that process. You’ve got, you’ve got the banks, you’ve got the teams. But what are we looking at for percentages or money down? If somebody’s never done a construction loan or they’re nervous about it you know, kind of walk us through that if you don’t mind.
Yeah, and you can send people my direction too. We’ve done some videos and have some details on that. ’cause You’re gonna forget what I’m about to tell you. I can promise you that. Right, <laugh>, but doesn’t mean we shouldn’t answer the question. So a high level summary is this. So if you were to reserve a unit right now we’re priced at two 50 a unit, $250,000 per unit. Each unit is a three bed, two and a half bath town home with a two car garage and a driveway. And we do granite counters, we do LVP flooring, we do LED disc lights. They look like canned lights, but they’re more efficient and they’re, they’re cheaper to operate. So tho those are the units. So they’re townhouse style units, but we pla them as duplexes, triplexes and quads. So if you reserve a unit, you owe a $10,000 refundable deposit, your money’s refundable for 30 days.
And during that process, we get you qualified for the long-term loan. This is what you’re all used to as investors is, you know, you give your w twos, your taxes, whatever to the mortgage guy, he uploads it and he qualifies. You know, they ask you a few questions and they issue what’s called a Fannie Mae a US approval on automated underwriting system. They plug Melissa’s info in, Fannie Mae says approved, right? And generates a letter. So that’s good. We check the box there. And so we’re gonna take that approval to a local bank, a construction lender. Fannie Maye doesn’t do construction loans. That all comes from small regional banks for the most part. And that’s who we use. I mean, you can get construction loans through private lenders, but you’re gonna be paying double digit interest rates. So we go to our lender that knows this, that, that likes our clients, that likes this kind of product.
And we say, meet Melissa, she’s qualified for her, her Fannie Mae loan, here’s her file. And he might ask you a few more questions, Melissa, or require some other documents. Not much typically, but knowing that you’re approved for the takeout loan, they’re gonna approve you for the construction loan. So now it’s time to close and they require 25% down on these, on these loans. But you’re also gonna have a good chunk of closing costs. That’s more than what you’re used to on a conventional deal. You know, you’ve got your appraisal and your miscellaneous, you know, loan origination, that kind of stuff. The biggest fit factor is are the prepaid interest reserves. If you’re gonna borrow money from the bank to build, they’re gonna charge you interest. And construction loans are typically interest only. And the rate that you’re gonna get charged is usually the prime rate plus one point.
So I think a construction loan would be, I don’t know, somewhere between seven and eight today. I, I haven’t looked, but that’s about where they land. And there’s a formula that banks use to collect interest reserves. Off the top of my head, Melissa, I think what they do is they take the total loan amount and they, they figure out if that loan amount was fully drawn, what would be your monthly interest payment, right? So, ’cause they know you’re not fully drawn right away. And so your, your statements at the beginning, you’re gonna be like, you owe $200 because you barely borrowed anything at the end of the construction loan. They’re bigger because your loan is fully drawn and that’s when you refinance and pay it off. So back at the ranch here, so you, you close, you become the owner of the land in Indiana, you have a construction loan ready to draw on, you’ve prepaid your interest and now we do our thing, right?
You’re gonna get a DocuSign every month that shows, Hey, please sign this DocuSign to cover your, your permit, your footings and your foundation 50 grand or whatever. And so you sign that the bank sends an inspector to the property to confirm that, yeah, we did get the permit, we did do the footings and foundation. They don’t want to pay for stuff that hasn’t been done and neither do you. So it’s, that’s a good way to protect yourself there. So you sign that draw, they release the money, we pay the subs, and we do it again next month. And you’re gonna get pictures and updates and drone footage from us along the way. If you’re ever in town and you wanna see your units, that’s great. Just let us know. We’ll tell the the team that you’re gonna be at the site. Don’t just wander around at the site, let us know.
Construction time typically takes about nine months. The the purchase agreement we use gives us 12 months just in case you gotta have your just in cases in there. ’cause Stuff happens. I don’t know if you saw this, but a couple months ago there was a funny story, well, it’s funny for everybody else, not me, but it was on a, b, C news in LA where a tanker ship in Long Beach Harbor, one of the crane drivers had knocked a bunch of shipping containers into the harbor off of the top of the boat, and a bunch of our cabinets were in those containers, <laugh>, right? And so luckily we, we sourced new ones and there was insurance, but stuff happens, right? That’s, that’s the nature of new construction. If you wanna deal with no risk, you can buy stuff that’s completed where you know what you have, but the return, you know, is reflected in that.
So stuff ha that’s why we have the 12 month in, in a perfect world, you could build it in six months if everybody showed up exactly. Everything was perfect. But we all know that’s not the world that we live in. So nine months is a more realistic figure that we’re dealing with. And so as you get close to the finish line, right, we’ll make sure that your property management agreement is in place. We have a, we have a management company that my partners own that do all the leasing. We’ll get you in touch with the HOA and I’m sure you’re gonna have questions about that in a second. But and then you refinance. Usually I, I’ve seen these things take, you know, if the market is slow or a bunch of units are built all at once, and it’s like Christmas, you know, it, it could take a number of months to lease your units and we’ll have that conversation on the front end so you make sure you’re prepared with reserves to, to carry the property through that.
Other times I’ve seen them be fully leased before your first mortgage payment is due. It just really kind of depends. But you know, I tend to think it’ll go pretty okay in Fort Wayne. There was a great article in on CNBC, it was last year, but that Fort Wayne is the market with the fourth fastest growing rents in the country right now. And the Midwest is really having its day. There was so much activity in the Sunbelt and in the Rockies, but the Midwest just kind of hung out. And now with this flight to affordability, you know, you’re, you’re seeing this opportunity for gain. So it’s cool to see that. And it’s reflective in the marketing data that we’re getting back. Yeah, people are interested in these units and we are advertising ’em at a higher price than we have on our proforma.
We wanna see what the market will give us. I I think it’s gonna give it to us, but once we get, you know, 10 to 15 of ’em signed I might raise the, the rents on the proforma. And I mean, it sounds, I I’d be dumb to not raise the price at that point. I mean, we still need another six weeks of data before we would conclude that. But that’s I, I kind of got on a tangent there, but that’s about how the process of a construction loan goes. And, and we have videos we’ve done on it. I’m happy to talk to everybody about it because if you haven’t done it before, it’s, it’s a very new concept and it takes a couple of reps before you get it.
Yeah, definitely. No, thank you for going through that step by step and, and I appreciate the breakdown because I’ve been doing this for a long time and there are people out there that love new construction and there’s absolutely a reason to do new construction. They’re pretty easy. We know that everything is put on a 30 year roof and cool, you’re good to go for 30 years. It’s really cool, easy model. And these are also built in better areas you know, areas where housing is needed. And so there’s so many reasons why new construction is good, but then people get really scared away when they’re like, oh, I’ve gotta do a construction loan. And, and really my, my advice is also if you’re gonna do that, you need to be working with a team who has the experience. So we wanna know like what your background is, how many projects you’ve done, you know, these are the questions investors should be asking a builder.
‘Cause We’ve seen in Florida, Steve, I know you’ve seen this because we’ve seen the headlines where some Joe Schmo decides, Hey, I can make a lot of money in Florida acting like a builder. And things have gone sideways and people have gotten taken advantage of. And so you guys, this concept isn’t new. Every people have been doing new construction <laugh> and people have been doing new construction loans for a long freaking time. This is not a new model. However, what is new is you’ve got a team here, Steve and his team, who are going to essentially hold your hand and walk you through it. Like, hey, here’s lender number one that you need to talk to for the refi. Done. Now here’s bank, you know, number one, we’re gonna tell you where to go and what to do. We are gonna handle the draws, we’re gonna handle it all.
So you guys, somebody’s gonna handle it for you and give you the answers when you need it. So we come down to trust and experience, quite frankly. And so if you’re talking to builders, if you’re doing another project, if you’re not involved in this one, although everybody should give Steve a, a, a call and kind of learn more about it. Do you guys ask the questions? How many developments have they done? What is their experience? Who is this company? What is the background? Like, even though this is kind of a, a, a turnkey process, I say you still have to do your due diligence. Obviously Steve, you and your team have done the due diligence on the project itself, the market, the demand, all of that. And he can share that information with you guys. So at the end of the day, Steve, you’re saying that like if, if somebody wanted to get involved in one of these projects by doing it this way with a construction loan is how they’re going to cash flow, this is how they’re going to have a profit versus buying a project that’s already done. I mean, is is that really, you kind of alluded to that in the beginning.
Yeah, I mean, everybody wants to catch the unicorn, right? Everybody wants to find the brand new property in an a location with an 8% cap rate. I mean I applaud you for trying, but it just doesn’t exist. And if you find one, it’s not gonna last long before everybody else figures it out too, right? And, and, and that just really is what it is in real estate. How much risk do you wanna take? And, and what we’ve tried to do here is optimize it to where you can take a sensible amount that’s, you know, you can kind of compartmentalize and, and get a, a little bit better. Well, not pr probably at least a, a whole cap rate point higher return if you’re, you’re to do it this way and you, because no, nobody’s just gonna give away 8% cap rates on new builds.
It’s, it’s, you know, they’re not charities. And so when we calculate these numbers, they assume all your down payments, all of your interest reserves, all of your costs, we include that. So there’s no money hiding elsewhere. It’s all included in your total cash out of pocket, which is what all your projected returns derived from, is your total cash out of pocket. I heard a guy use the term, I almost threw up Melissa he called it a net cap rate. I’m like, I didn’t know there was any other kind of cap rate, right? Basically insinuating like I have one for advertising purposes, and then there’s the real one <laugh>, right? You gotta have all these figures included in your proforma. And I I’m happy to help your, your listeners with this, but you know, there’s something out there that, that’s called a sensitivity analysis, right?
If you’re thinking about this, remember, you, you’ve got some runway before this deal becomes what you want it to be. And things can and do change when you’re going down the runway. That is the risk in pre-construction deals. So you have to say, well, what if it rents for X? What if it rents for y? What if my rate is this instead of that? And kind of get the idea for what the parameters are of at what point am I still okay and, and what is my degree of confidence that I’m gonna be within those lanes on this deal? And that’s a decision every, every investor has to make. I mean, luckily in this, you know, era of the, the internet that we’re in, it’s easy to verify a lot of things independently and you can do that. But we’re happy to help you run proformas and do a sensitivity analysis to see, you know, if we don’t get this amount in rent or if this happens, do you still like the deal or not?
I love that. I that’s a really cool name for it too. I like the sensitivity analysis because you know, like you said, this is real estate at the end of the day and there are factors that we can’t control. So we, we assume, you know, we try to assume these different numbers and then we go, okay, what makes it a bad deal at one point? Or what makes I, sometimes I call it a sleep factor, like, what’s going to keep you up at night that you’re stressed about or you can’t sleep, you know, what are those factors? Because everybody is different. Some people, if they don’t take as as much risk, they, they want risk, they, they thrive on risk. And so they’re like, I I want that, that I will lose sleep if I don’t have, you know, a bigger return or more risk. So everybody is so different, right?
Yeah, they are, they are. And I, I think pre-construction generally requires an investor with a little bit thicker of a skin that doesn’t have to be like raw hide, but a little thicker, you know, because there, there’s a joke that, you know, your proforma is wrong when you click save, right? Tenants don’t care about your proforma, the tax assessor doesn’t care. Insurance companies sure don’t care <laugh> about your proforma. And so you have to do your best to get in the ballpark and say, is this gonna be, you know, about the same, you know, what I usually see is these come out the other end pretty close to where we said, but this is higher, this is lower. But when you, when you add it all up, it’s about what you thought it would, it was gonna be, but you have to be the kind of person that can go, all right, I invested my money, I own land in Indiana, I’ve got a builder and now I gotta let this thing cook for nine months.
Right? That’s just what you have to be willing to do. And I, I do get asked periodically, well, what if you go out of business? Like what if you guys pick up and move to Brazil in the middle of the night? Right? It’s a fair question. And not that it would be particularly pleasant, but you’re the owner of the land, you’re the owner of the credit line with the bank, and if we default on our contract, you go hire a new builder and you finish your units, like I said, there’s some logistical stuff. It’s not gonna be fun, but you can do it. It, it’s not like your money went, you know, off into Bernie Madoff land. You, you still do own an asset.
You’ve got some, you’ve got some parachutes to kinda, you know, protect you a little bit and yeah. Yeah. Perfect. Right. Okay, so wrapping back around before I forget because you did say, Hey, you’re probably gonna ask me about this later, and I am so HOAs like, is there HOAs on these? What does the community look like? Is there any shared services like gimme gimme some light on that situation?
Great. Yeah, HOAs a lot of times are a dirty word with main street investors, right? And rightfully so, some HOAs are just completely outta their minds. I get it. Now when you’re building 135 doors, which is what we’re doing, right? You have to have one sheriff in town, right? Many of these units are attached to each other as town homes are. And so you have to make sure that there is a master insurance policy over the top of the entire community. The only way to do that is with an HOA, right? You’ve gotta make sure that the grounds are kept, the lawns are mowed, the snow is removed, right? We had to do that a couple days ago. It snowed a lot out in Indiana. So you want somebody to drive through that community and look at it and say, oh, this looks like a bunch of town homes and have no idea that it’s owned by a bunch of different investors, right?
It could maintain that, that uniformity enforce the CCNRs, right? You can’t let your tenant park their, their car on the lawn. You can’t hang up Star Wars sheets for your, your curtains. These are all things I’ve seen happen, right? So you, you want to maintain the community. You want to make sure there is insurance. You want to make sure there are reserves as well. Maintenance of the community is different than reserves. Like one day that roof will need to be replaced. One day there will be a windstorm that rips off some of the siding and that needs to be repaired. And, and you don’t wanna rely on is that owner gonna do it or are they not? And if so, how are they gonna do it? Are they gonna put on a different color of siding? And this place is just gonna look like a, a disastrous hodgepodge.
There needs to be one sheriff in town. And so typically, you know, you’ll see on our proforma that the HOA dues are around 180 bucks a month per door. And people, sometimes that’s too high. Well, it’s not because most of the costs that are in that 180 are costs that would’ve shown up elsewhere on a regular deal, right? We’re just moving from one column to the other. In some ways it’s good because it’s a professional company that is doing this, right? You know, you’re, many of your investors probably aren’t budgeting for CapEx down the road. The HOA is right? That money is there for when the roofs do need to be replaced. That insurance is there for when the hailstorm comes through the community. So additionally, the HOA covers the water and the sewer and the trash, right? There’s a basic internet connection in each unit.
One cool thing that we have, it’s not a part of our community, but a reason we did this is right next door is the New Haven Community Center. And everybody gets to go to the community center from the community. They’re, they’ve got a splash pad, a big park, outdoor tennis courts, outdoor pickleball. But even more importantly, when it’s two degrees outside, they’ve got an indoor pickleball court. They’ve got a really big indoor gym. And, and so I love it from an HOA standpoint ’cause we get a benefit from being the next door neighbor to this stuff, but we don’t have to pay for it. We’re not having to maintain all those facilities. So it’s, it’s kind of the best of both worlds. And we did put a, a little dog park in down at the south end. People like their dog parks. But all in all, you know what amenities wise, having done as many of these as I have two things that we have that are, well, actually three things that are really great.
I’m not gonna bore you to death. I’ll go as fast as I can. Number one, we have firewalls between the units. ’cause The units don’t have fire sprinklers, which I like because when you have fire sprinklers, it costs so much that builders skimp and they do the thinnest wall that they possibly can up to code and you can hear everything next door. And so when the tenant’s thinking about moving and they can hear the cabinets shutting or worse next door, they’re gonna move, you’re gonna have a high vacancy rate. But when you build without fire sprinklers, the floor plate between the town homes, it breaks. There’s dead air and a big piece of steel that goes down the middle so you really can’t hear much next door. So that, that for your long-term vacancy rate is great. Number two, you know what I hate is dumpsters. Dumpsters are terrible, right? Raise your hand if you’ve ever sneaked over to a dumpster and thrown something in it and it wasn’t your dumpster <laugh>, we all do it, right? Yep. Guilty.
Guilty.
<Laugh> guilty. Yeah. So, and, and so that’s gonna happen to you. Like if we have dumpsters, there’s gonna be an old mattress and a couch and people just chuck their, their trash in the general direction of the dumpster. That’s not good. And so instead of dumpsters, I know it sounds like a novel concept, we just have trash cans, but when a tenant has this is my trash can, right? They take care of where it’s at and what goes in it. And that is better for the, you know, it makes a more sightly community over time. And then another one, it’s not flashy. When you’re building build to rent in the suburbs, you need a two car garage with a driveway. A lot of times people will park one car in the garage and a bunch of crap in the other stall and another car in the driveway.
But, you know, a lot of times cities require like two and a quarter parking spots per unit, right? And that’s just barely enough. You’re, there’s gonna be bickering about parking when that happens. I can never have anyone over, they never have a place to park, right? That’s a common problem in most town home and multifamily communities. Cool thing is, this one is technically we got four spots per unit, two in the garage, two in the driveway. Now maybe they won’t use ’em all, they’ll put some crap in the garage, but that’s on them. So those are three things that just in like the day-to-day living of operating a community over the long term really, really matter. So there you go.
Amazing When you say them, I know those are problems, but I didn’t think about those items and I’m like, yeah, those are really cool things to have and if I’m a, you know, a renter, those are gonna be really important things to me. So, and then also I thought of, okay guys, we’re almost done. We’re gonna let Steve go. But I thought of one more thing yeah. To ask you as you were talking about this community and you were talking about the HOA and the, the nextdoor, the community center. Have you guys ever thought of, or is, or do you know of maybe you don’t know any city restrictions or requirements, I’m thinking of midterm rentals or short term rentals for these units. Have you guys put any thought to that at all? Of course. I’m gonna go there because I am a short term rental girl as well. So what are your thoughts?
Well, I mean, you’re gonna love and hate my answer, but there is one property in the development that was approved for short term rentals. The city required it, but we already sold it. You know, so <laugh> that that stuff is that stuff is taken care of early on in the process when you’re negotiating your development agreement with the city. And most cities are very, very spooked about short term, not so much midterm rentals. They’re spooked about short term, but you’ve gotta be in an area that is zoned for it. Otherwise, you get to go through a rezone and good luck. I don’t know what the result is gonna be. I don’t know how much time it’s gonna take or if it’s even going to work, but yeah, I, I, I do think that, that there are cities that are open to it, but they’re kind of restricting it. You know, you, you just don’t know, like down in Oahu, they, they said you can’t rent anything for less than 30 days, right? The hotel lobby got ahold of ’em. So we, we have entertained it in some of the places that we’ve operated in, but we just haven’t fully launched it yet. Melissa, ’cause you, you do get a lot of resistance from the, the cities on that.
Mm-Hmm <affirmative>. Yeah. Yeah, no, that’s a great answer. You know, midterm rentals might be something worth if somebody out there is listening and they’re familiar with midterm rentals or they’re interested in it and you wanna rent your house to traveling nurses or you know, traveling, you know, business people or corporations or whatever, they’re very popular in cities where there isn’t a lot of housing and there may not be a lot of hotels or people don’t wanna be in a hotel. And so if you are familiar with midterm rentals, it would be worth checking out these addresses, talking to Steve, running the numbers. ’cause Those are 30 days or more. So you don’t have to have special permits for those. But that would be interesting because of the resources of the community and the next door neighbor of the community center, people who are traveling love to kind of have those amenities as well.
Totally. Yeah. And it’s, it’s gotta be in your HOA docs too, right there. That’s gonna be what, what restricts it as well. And some HOAs are loosey goosey on the enforcement of it. Some don’t even know that it’s happening, right? But a a lot of times, as long as the lease is at least 30 days, they’re okay with it. But you gotta check the development agreement, your HOA CCNRs and your city zoning. ’cause You would think that all of those people talk to each other. You’d be surprised. <Laugh>
<Laugh>. Good advice. Good advice, Steve. So, okay, you guys, we want you guys to you know, connect with Steve directly if you have any questions. So of course we are going to hook you up with Steve and his team and how do you do that? So I am going to gather all of the information for you, and I’m going to have it either in the show notes or there’s going to be a link that says, Hey, connect with us, we’ve got questions about this episode, or talk to us. And you’re gonna click on that and you’re gonna say in your email subject line, connect me with Steve. I wanna learn about these Indianapolis deals. We will make sure that you guys get connected. So thank you. Thank you again, Steve. I’ve had you on here a couple times now, so we’ll continue to talk about other projects and other cities that you also have some developments. I don’t wanna like, you know, throw too much out at people at once, but really, really, really quickly mention the cities that you also have projects in.
Yeah, I’m a, like I said, I’m a co-developer on the Indianapolis project. You know, our main squeeze, if you will, is the Dallas-Fort Worth metro. We build brand new single family homes in Alabama as well. And we have scaled into two more markets. They’re really fun, they’re cool markets. Nashville, Tennessee and Savannah, Georgia are in process right now. We do have a couple trickling in the door in Nashville. Need a little bit more time in Savannah. I was down there last week, actually liked what I saw, the renter high in Savannah. They, they need rental product there. So you’re, you’re certainly welcome to reach out about that stuff too, and we can stay in touch.
Amazing. Thank you so much, Steve. I appreciate you having us take up your time today. So we’ll let you back and we’ll see you on the next one.
Thanks for letting me take up yours,
<Laugh>. Thanks Steve. Bye. See you.
A big thank you to Steve and Melissa for sharing valuable insight into how investors are making new construction cash flow today. That brings us to the end of today’s episode. If you haven’t subscribed yet, now’s the perfect time so you don’t miss any upcoming episodes. We truly appreciate you spending your time with us. Thanks for listening and we’ll see you in the next one.
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