New Construction Rentals in Houston: Institutional Strategy for Everyday Investors

[00:00:08]Hey, Wrench Tires. It's Matthew Se here with another episode and today we're here to talk more about some Houston, Texas new construction uh with Ryan Smith. Ryan, how are you, sir?

[00:00:19]>> Doing great, Matthew. Thanks for having me.

[00:00:21]>> Yeah, absolutely. Thank you so much for joining the podcast. Um, so we're we're going to dive into u some of the inventory that we're going to start to release here with us at Rent to Retirement. We're so excited to work with you and your team um there in the Ro Sharon, Texas area. Um but before we get into that, tell us a little bit more about you and kind of how you got started in the real estate world.

[00:00:43]>> Sure. Happy to. So I I started uh in the business quite a long time ago, almost 30 years ago. I've spent the majority of my career in institutional real estate investment very heavy with traditional multif family acquisitions, asset management and development. Uh I uh started my career with a company called Principal Global Investors and then spent 15 years with BlackRock uh up until 2021. I wanted to maybe touch on that really quickly because a lot of our investors are either newer to investing in general, right, which is which is great because we like to be a platform where people can um be educated um or they're already educated in the the training wheels of real estate, right, for an example sake. Um but are looking for more of a um a specific hand in what the next market might be that would be helpful or what a property type would be, right? and and you've seen so much of that in your time at Black Rockck and in institutional investing. What have you noticed from the institutional space that is really carried over as you were working with more retail buyers now?

[00:01:49]>> Yeah, I I will tell you it's looking at how the institutions have uh participated in the single family rental space. It's a really interesting case study and if you go back to postGFC days when the aggregation of scattered homes really became uh a thing and and this entirely non-institutional investment class was was born out of you know a lot of it was you know some great work from a lot of different people that helped to overcome the biggest problem was the inefficiency of of managing largecale portfolios uh cost-effectively and so that problem has been solved in in many ways by a lot of the institutional players and the participants in that space. But if you look from you know let's say 10 years ago when the build for rent phenomena really became really uh became a a phrase that we're that we all talk about in the industry. The institutions really flocked to uh these purpose-built communities that are built at scale with a with a rental business plan in mind.

[00:02:55]And um in my opinion, that is what is that that's where let's call it the smart money has decided to play here over the last decade or so. And it's not to say that that owning scattered homes isn't isn't a good idea, but it comes with a different layer of risk and it's and it's a harder problem to solve. I took away from my time uh in in the institutional space and that that uh brought us to building these uh communities of of single family rental homes uh in a scaled uh environment and and putting a a professional management overlay over the top. Here's the part most real estate investors don't think about until it's too late. Buying the property is the exciting part. How you own it is the part that can protect you or expose you. A lot of people rush to close, file a quick LLC online, and assume they're covered. But owning [music] rental real estate without the right structure can leave you vulnerable when something goes wrong. And eventually, something does go wrong.

[00:03:55][music] A tenant issue, a dispute, a claim, a lawsuit. That's when investors find out whether their setup was actually done right. An LLC can be one of the smartest ways to hold real estate, but only if it's formed properly and timed correctly. That's why Rent Retirement works with NCH. They've been in business for 32 plus years, formed over 250,000 businesses, and they focus on getting it done right for the first time. If you want more confidence in how your rentals are owned, go to nchinc.com/rtr.

[00:04:25][music] That's nchinc.com/rtr and get your free Wyoming advantage guide that tells you why you should protect your real estate investments with a Wyoming LLC.

[00:04:37]Here's something most investors don't know yet. Congress just [music] passed a hard cap on how many homes large institutional investors can acquire. And the big players are already pulling back [music] from some of the same markets where your best new construction deals exist right now. Meanwhile, builders need to clear inventory before July 1st.

[00:04:55]And they're offering up to $48,000 in concessions to make it happen. Less institutional competition, historical incentives, turnkey new construction with 17 to 19% ROI. Rent to Retirement sources the deals. Blueprint Home Loan structures the financing to put maximum cash flow in your pocket. Visit renterretirement.com and reach out to blueprint at blueprintloans.com/rentoret [music] retirement or call 8883431043 [music] to talk financing.

[00:05:25]Did you know that buildto rent construction starts have more than doubled since 2019? That's not a coincidence. Major institutional funds, REITs, and private equity have poured billions into the BTR sector because the demand fundamentals are undeniable. Home ownership affordability is near historic lows, and millions of Americans [music] want the lifestyle of a single family home without the financial commitment of buying one. Our partners at ROI Property Group have been building master plan BTR communities for more than a decade with over,200 [music] units built, developed, or repositioned. learn how they do it at ropropygroup.comrtr before you and I um go down our professional rabbit holes because we both love talking real estate for everyone out there listening right when we talk about institutional buyers just because I think that's something that people hear in the news a lot right I I want everyone listening to understand that that is um entire venture venture capital firms or entire companies that pull together millions and millions of dollars from investors all over the nation all over the world and they have a fund, right? They've they've taken all the this money and they have a fund where they take those funds and then purchase they're purchasing sometimes hundreds or thousands of doors at once.

[00:06:39]And so they're purchasing these uh as part of a portfolio for a group of investors. When we talk about a retail investor, that's you and I, right? that is John Smith and Nancy Drew up the street who are who have three kids and a and a modest living but they're consistently purchasing in real estate or your physician or your attorney or your pilot that has a job but they're also investing in real estate as an individual right they're not investing as an entire venture capital firm right so um I I appreciate you clarifying that or kind of giving us the difference there now pivoting a little bit you have all this background and this working history um in the invest the the excuse me the space, but then you're transitioning it over into the retail side and now we're here with Houston uh a Houston suburb with new construction that's already tened, right? Um tell us a little bit about both a market that you opted to work in and kind of the why behind it.

[00:07:37]>> Yeah, so the uh Rosharon subm market on the south side of Houston is in incredibly appealing for many reasons.

[00:07:45]The first being it's situated in a highly desirable public school system, the Alvin ISD.

[00:07:52]Uh secondly, we were able to acquire a lot position inside of the Sierra Vista master plan community, which is a very highly amenitized uh community with over 2,000 homes. and we've uh built a a small section of of that overall 2000 uh home development for with with rental uh with a rental business plan in mind for for the homes that we built within that section. Um so what our our residents benefit from access to incredible amenities uh true resort style uh amenities that resort style is massively misused by by our industry.

[00:08:35]But when when you see what what our residents have access to, lazy rivers, pools, sport courts, everything you'd ever want, a clubhouse, it it truly uh meets that definition. And so um beyond outside of the community, uh Sierra Vesta and Rocher are incredibly proximate to one of the largest employment centers in in the state of Texas. It's the Texas Medical Center.

[00:09:00]It's just due north of our community. Uh over the last several years, there was a a significant uh improvement and expansion of Highway 288, which is the main shot straight up into the Texas Medical Center from our community. So, our residents who work in in the med center benefit from, you know, as little as a 15-minute commute, whereas at, you know, prior to that uh road work being completed, that was a much longer drive. And it really opened us up as an option for folks that work in that in that incredibly important and and and and you know massive job center that is the Texas med medical center.

[00:09:37]And it's not just the med center. You have uh the downtown Houston. There's several significant employment centers scattered around uh the metro area. And with our proximity to Highway 288, which connects you to all of the main arterials, that's a huge advantage that our our residents uh really value uh about our location.

[00:09:58]>> I love that. Thank you so much. Just because a lot of our listeners, right, have already been educated from Rent Retirement and the readings that they've done online, they can hear what we talk about when we're talking about secondary and tertiary markets, right? Um when we hear when we talk about big cities, everyone thinks uh New York, LA, DC, Chicago, which absolutely correct. Those are huge cities. Um people don't people are sometimes surprised when I talk about Houston being the fourth largest city in the nation and it just being so sprawling. So Houston, downtown Houston, Houston proper, you have really good purchase prices. Great. But then the secondary and tertiary markets like Rosh Sharon where that you're talking that we're talking about here, um still in the path of progress, right? So, as this Houston city center grows, the outskirts grow. And as the outskirts grow, you have markets that you're in, for example, that are growing as well. Both from an appreciation standpoint in terms of the home value, but then also um the the tenency as well. The market is incredible. You and I have been talking at length as far as um it being new construction. Um so, that part I think our investors are used to. I do want to pivot a little bit and spend some time to what is really different about your team and what we're excited to see in action, right? Which is the property management side. A lot of our investors are just busy professionals. They don't have 10, 12, 15 hours lying around um to be in the weeds of managing um managing them their manager, right? Or managing the specific tenant. Um, and an example that you used in a meeting of ours that I loved was Ma you said, "Hey, Matthew, I want you to imagine an apartment building, but instead of one building with a bunch of units, it's these single family homes all with their separate value, separate tenants, but it's managed in the same way. Can you speak to that?" And and kind of the property management that you you've built out with your team there.

[00:11:50]>> Sure. Yeah. And and the apartment example, I think, is an important one.

[00:11:54]You've heard me talk about the power of scale and the benefit of scale. And as you know as well as anybody, when you have a a large enough number of units that are in close proximity to one another, your ability to cost effectively manage and maintain those homes and provide excellent service to your residents and and importantly to us, our investors. It's greatly enhanced by the fact that we have a large number of homes uh built contiguously that allow us to have an on-site uh full-time maintenance supervisor dedicated entirely to this community. We have a full-time on-site community director uh who who uh oversees all things management, leasing, and resident relations.

[00:12:44]you you're not able to to pull that off unless you have the power of scale and the benefit of scale which which we're able to bring in and and share those benefits with our the investors who are acquiring homes from us and now uh partnering with us on the management side.

[00:12:59]>> Yeah, I love that. That's incredible. Um just because like you already mentioned, right, when you have these tenants that have all of these luxuries that um do love be being where they're living currently, um making sure that it that's as quiet as possible, right? The what I mean by quiet is um even in the process of of you guys selling a property to one of our investors that there isn't a bunch of clunky moving parts for the tenant and that they're not disturbed and that they're still happy and wanting to stay there for years to come. That's incredible.

[00:13:29]>> Yeah. If I could add to that, Matthew, they so many of our of our residents are coming they're they're leasing a home from us and they're living in a home for the first time and they've come from an apartment environment where they have grown accustomed to very hightouch maintenance or or management and and maintenance from their property managers which works well in that in that large scale format. And so for them to come to us, we hear we hear it from prospective residents all the time or or from our existing residents who who we survey very frequently to uh uh where they they talk about making that that you know coming outside of an apartment environment was and and and losing what their concern was losing that great service uh that that they were accustomed to in those environments. uh where we're able to pick up and and and really enhance the the service offering beyond what they've ever experienced in in an apartment envir environment that that really stands out in our residents mind as a reason why they choose to stay with us for as long as they are.

[00:14:33]>> Yeah, absolutely. Um that's incredible.

[00:14:36]So I I love to I love to ask this especially from the perspective of um providers that we're working with. Um we have a lot of investors who are investors and understand the game, right? and and that is amazing to work with, but we have a lot of people who um have been on the sidelines, right, for one reason or another. Um they're either still researching or they're still vetting markets or property types and and trying to figure out what makes the most sense for them. Um our inventory, Ryan, as you're familiar, um and anyone listening, our inventory, it's about 6040. It's about 60% new construction and then 40% properties that have been renovated within the last three weeks.

[00:15:11]Um, but for everyone looking for anyone looking at the new construction specifically and and looking at your properties or considering Rosh Sharon, um, what would you say to the investor who might be nervous who who's still on the sidelines and and wanting to look for a reason to kind of jump in? What would you say to that investor? Right?

[00:15:31]>> The first thing I would say is those investors that are spending that that amount of time and energy uh on on on diligence in the way that I know that that you believe in. And so entirely I I give them a pat on the back because it's the right way especially the these are significant investments. These are real dollars that we're talking about that are meaningful to us and and all of our investors that we work with. So uh continue to stay diligent and and my I'll speak specifically to the Houston market but I think these comments apply nationally.

[00:16:03]>> Sure. The Houston market had seen significant new construction deliveries, not just in in single family homes, not just single family rentals, but also in the apartment space. And over the last two, three years, the market has been soft. It it flat to soft. uh and but those deliveries that that had been weighing on the market over the last several years have come to a stop and we are in my opinion on the front end of a of a really favorable you know a couple two threeear stretch where that supply demand imbalance is going to move in the favor of folks who own homes especially uh people who are are acquiring high quality homes in highly desirable pockets of Houston. Um, you know, again, I I think now is a a terrific time to be to continue with really smart diligence and and to be waiting in on some good investments.

[00:16:57]>> I love that. I I appreciate that, especially the insight from someone who's been in the realm for so long like like you have, right? Um, so that that all said and mentioned, um, at the time of this release, uh, our in your inventory will be live with Rent Retirement. So, we're so excited for that. For everyone listening again, rentretirement.com um you'll see uh the Rosharon inventory there. Um purchase prices uh under 315, right? So these to be clear, these are single family homes, right? Completely separate of of one another. Um they're not, you know, half a million dollar single family homes. These are really, really quality newly constructed properties with a property management team already in place and um most in most cases the tenant already in place as well. Did I miss anything with that, Ryan?

[00:17:46]>> I would simply say that uh beyond the benefit to our residents that you know having a dedicated on-site uh team and and th those benefits are significant.

[00:17:56]We're able to respond to maintenance uh tickets and and resolve them well under a day is you know our average is less than a half a day before we can resolve a maintenance item. It's worth noting that the way our management construct or contract is constructed is that our investors benefit from the fact that if a resident submits a maintenance ticket that our our on-site team can resolve in 15 minutes or less, then the investor doesn't get build anything. Whereas um you know obviously if if you don't have the benefit of scale which allows for the on-site presence, you're rolling a a maintenance uh tech out to evaluate every maintenance ticket and that build that doesn't happen uh for free. So we're we're able to pull that off. Yeah.

[00:18:45]In addition to the speed at which we're able to uh respond to residents needs, the expense that our investors incur for so many uh of the things that happen in in the normal life cycle of uh owning a a single family rental property, we're able to do that very cost-effectively.

[00:19:04]You know, our repair and maintenance expense numbers are a fraction of what we see published by the broader industry. Our uh turn cost the same. Our our average turn cost over the last 12 months is $1,600 uh per turn. Uh our retention rates within the community are north of 70%.

[00:19:25]The community as a whole is occupied currently at 93%.

[00:19:30]um the the power of of of our approach to managing these homes is bearing out in the numbers and and I'm eager uh for you and and your or for your investors to to get a closer look at at those numbers uh you know at the appropriate time. Matthew, >> that's really exciting especially for our investor base because a lot of the reason that people are going turnkey, right, rather than and this is a question that I get all the time, so I appreciate um you passing this to me, but um a lot of the reason people are going turnkey rather than maybe going at it themselves um one is the volume of the relationships we have, right? The fact that we move so much volume um allows for us to get in touch with uh people like yourself uh who have a very specific inventory for a very specific type of investor. Um now can the average investor go to Zillow or Realtor.com and try and figure it out themselves?

[00:20:22]Absolutely right. We're not going to be disingenuous and and say it's impossible. That said, where it is specific to rent to retirement is that a lot of people are buying one, maybe two, maybe five properties a year. With rent to retirement as a marketplace, we're we're doing 40 transactions a month on average. And so at that volume, it just allows for us to one negotiate with sellers, but two, um, allow for us to find property management teams, selling teams like yourself who have this infrastructure already in place. Right.

[00:20:55]you are then not um John Smith with one property on the phone from a distance hoping that you're able to get a hold of a property management team you trust.

[00:21:04]We've already vetted the we we've already vetted you and your team. Um so we're really excited for our investors to um be able to witness that up close and personal as well. Um and the long-term ROI benefit to having a tenant renew their lease consistently because they know the um property management team, because they're aware of the office team, right? Um, I think that really goes uh a long way. So, uh, Ryan, we really appreciate your time and thank you so much for talking with us today and thank you all out there for joining us to get yourself educated. We'll talk to you on the next episode.

[00:21:37]>> Thanks for watching the Rent to Retirement YouTube channel. Check out some of our other videos like this one or this one here.