Redeveloping Sites into Rental Housing
“Buy and hold” is probably the most common strategy employed by real estate investors. We love it. Not only is the model relatively simple to execute, the passive monthly income it generates creates great cash flow and the stability and security it offers allows your portfolio to mature over the long term into something incredibly valuable.
While buying a house, fixing it up, and renting it out is the “bread and butter” of the buy and hold strategy, redeveloping an existing site into rental housing is the upper echelon of this form of real estate investing. Redeveloping into rental housing allows you to take this tried-and-tested long-term formula and scale it up into something much, much bigger.
Redeveloping in real estate is essentially taking an existing site and reimagining it for a new purpose. Yes, it is still a secure, long-term investment strategy, but here we’re talking about owning hundreds of rental units whose value matures over time rather than just a small handful of individual houses.
Upscaling the Buy and Hold Strategy
Those who are relatively new to real estate investing often see large-scale redevelopments as something to approach with caution. Making repairs and renovations to a single-family home in order to raise the rent potential is much easier to accurately budget when compared to large-scale redevelopment projects.
The bigger the scale, the bigger the risk. For this reason, redeveloping sites into rental housing is often reserved for the most diligent and experienced real estate professionals. Newcomers tend to shy away and stick to single-family homes.
It’s not only the construction budget which makes inexperienced real estate investors cautious about redeveloping a site into rental housing. When working on one house, an investor can easily predict the future rental values of a home as similar houses in the local neighborhood offer actual, tangible comparisons. When redeveloping an entire site into rental housing, investors are essentially creating a new sub-section in the market.
This means that investors have to be very well prepared in terms of forecasting and planning. They must leave no stone unturned in their preparation to ensure that, once construction is complete, they can quickly fill the units with tenants for the predicted rental rates which will ensure a healthy monthly profit.
I’ve been fortunate enough to be involved in a huge number of redevelopments, including over 500 projects in the Ohio area alone. Armed with the skills and experience to accurately budget the construction costs and critically define the future rent potential for the redeveloped site, for me, large-scale rental housing projects are the best way to go.
There is less competition for purchasing the site when compared to the more simplistic formula applied in single-family homes. This means extra value can be leveraged right from the beginning. Yes, the “buy and hold” strategy creates great monthly passive income, but over the long term it also builds a healthy nest egg which investors can capitalize on when they feel ready to retire from real estate. For me, it’s a question of what you want your portfolio to look like when you finally call it a day, cash in, and sail away into the sunset.
Redeveloping sites into rental housing, if done correctly, can be as stable and profitable as the more simplistic form of buying one or two single-family homes to rent. With large sites, we are essentially upscaling the buy and hold strategy to the point that, when all is said and done, you could be sitting on a portfolio with thousands and thousands of units in it rather than just a handful of houses.