Building From The Ground Up

[REQRentals]

I was reading on here and thought to share the story of our new construction project.



I was down in Tampa 2 years ago and decided to look at one of the houses Blackstone had purchased. Wall St firms had driven the prices up aggressively and were making it difficult to find good product for the rental investors. We did note however that there were infill lots available nearby "for dirt".

• Perhaps it would be cheaper to just build them from the ground up ?
• What if we could buy enough of them to build our own infill development ?
  By the time they were built maybe the Wall St. guys would have driven the prices even higher ?

Sure we would have to raise a huge amount of capital, decide what to build, come up with architects,, plans, builders, marketing etc....But if we were buying them to rent anyway and could build them cheaper it seemed with further investigation.


So we bought some land and approached our rental investors to fund the builds on the basis of "Plan B"-If they could not be profitably sold right away at least they could be profitably rented.


Somewhere along the line I joined REIN, the concept developed into my Avatar and the Avatar developed into our first Tampa New Construction JVs and these houses




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The first one (above) took the longest 58 days of my life to sell but got 30K more than original projections. The second one closed within a month thereafter and the 3rd (next to the 1[sup]st[/sup] one) sold pre-construction on the day we broke ground, set for December delivery. 4 more are just finishing permitting and approvals and we are developing a foothold in the market and a local following for our designs.



I have learned a great deal since I joined from reading these forums. One of the things that just struck me was Don Campbell`s observation that the successes along the way often quickly fade into obscurity as you focus on your next goal.




So I thought to take a break from the next houses to write about what happened to the first ones.



Thanks and happy investing !

 

[Dan Golby]

Well done! Sharp looking house too.



Any plans to keep and rent them or strictly keep selling them?

 

[Ally]

I reached out to Allistair and asked him to share more about his investing journey. Here is his response:





"
Started working for law firm/ investment
bank in 1990 doing real estate securities. Firm also owned Rent check Credit
Bureau so when market crashed gave me mandate to establish legal services dept
(odd as I was one of few people there who was not a lawyer). Regulatory law
touches on a great many aspects of Ontario buildings from collection procedures
to capital project analysis however and is very specialized field.



Stayed for 5 years and then went into
private practise working for some of Ontario`s largest institutional landlords
doing various projects, the most public of which were defending a number of
high profile class-action lawsuits brought by the City against various
landlords. Made Ontario Law reports and media on a number of occasions, teach
accredited law course to realtors, granted leave to argue in Ontario Court of
Appeal, various academic commendations for someone with no academic training.
I had a staff running office and was on the boat at Toronto Island before
noon on most summer days. Life was good but I always wanted to get back to the
idea of the investment firm I had started with. Persistently dealing with
landlords being sued and involved in other serious problems gave me a very
cynical attitude and prevented me from investing myself so when the opportunity
on Florida presented itself I all but gave it up and shifted focus.



When the market crashed in Florida it
was perfect opportunity. I was not a REIN member at the time but I employed
many of the same principles I later found advocated at REIN: I went and
invested my own money, bought a property and rented it and thereupon raised
money and sold others on doing the same. Most of our investors are other
professionals in real estate whom I knew from my work in Toronto (lawyers,
brokers, architects, full time investors). From 2011 to 2012 the Tampa
portfolio grew to over 60 rental properties, about 50 of which we still have
today.



In 2012 we started planning the
development described in my post, breaking ground in July of 2013 and selling
the first 3 homes within a year. We have 4 under construction,1 left in
planning and funding for another series yet to be started. Frankly thought we
would sell more pre-construction but we sell them as fast as we build them
anyway.



Currently I still have a direct (cash)
investment in 2 rentals (including the first one I bought in Orlando), 7 single
family sites and an approved site for 10 towns in a luxury waterfront
development. I also own the management company which has a development interest
in some 30 sites in addition to various interests in rentals.



With the new construction running
smoothly we have just started revisiting the rental portfolio from the
standpoint of land assembly, putting 5 single family homes into portfolio in
the last month on sites for future development.



Development is the highest form of the
art in my view in that it allows you to create value. Infill land assembly is
no different than monopoly as a kid: You just try to put as many nice houses as
you can on the same street to drive up the values."






Allistair, thank you for sharing your real estate investment journey with us. What an inspiring story!

 

[REQRentals]

Thanks Dan,



Much appreciated.



The rental vs sale thing is a paradox doing infill development as the more old houses you replace with new ones on the street the more each of the houses is worth.



However to build the next bunch you need the money out of the last ones. The margins are also dependent on production volume.



Ultimately it is up to the investor and/or lender financing the deal. If they decide to rent they can get a U.S. mortgage for the majority of the construction costs. The rents carry not only the mortgage but 100% of any balance on the Canadian HELOC in priority to any management fees or profit sharing. On sale we split the proceeds from the original build costs.



That was the theory however given that we can sell them right away the fast nickel has been preferred to the slow dime



Also have to keep buying new sites to replace the inventory as you build



Capital intensive business



Cheers.

 

[Dan Golby]

[quote user=REQRentals]That was the theory however given that we can sell them right away the fast nickel has been preferred to the slow dime


Great line, I like it



[quote user=REQRentals]The rental vs sale thing is a paradox doing infill development as the more old houses you replace with new ones on the street the more each of the houses is worth.




Makes sense! No point in holding onto any of them until you've built the nicest block in town

 

[Thomas Beyer]

A slow dime with far less capital gains taxes might be preferable to a fast nickel at higher taxes. It's not only what you make that counts but what you can keep !

 

[REQRentals]

Our Port Tampa "Infill-tration" continues as the first of the new "Shell Key" models nears completion next to the original Grand Key model home.



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