The real estate game is changing, and big time.
It’s no secret that the market is booming, but not all deals are created equal.
In this video, I’m going to be talking about two of the most popular options for investors: New Construction vs. Fix and Flip.
Transcript:
Chris Bounds 00:00
Do you entertain? Or do you look at new construction opportunities, as opposed to the value add or fix and flip type?
Speaker 2 00:07
Obviously, value add has kind of been our bread and butter over the years. We’re doing three new construction deals right no. Just here in Houston, because we want to kind of keep an eye on it. But just getting in on the business, I don’t know, man. I mean, I think you’d probably get, you probably want to have a development partner, that would know what they’re doing. Because I mean, talk about, there’s just a lot of nuances to that process and you’re gonna get jammed up. It’s probably the quickest way to lose some money. That’s why you have these people, whenever the market shifts, these developers get screwed, because they’re not far enough along in the process or their leader backs out, or their equity backs out. I would say probably going more bread and butter value add, you can get a general contractor in there, which there’s a lot of them here in Houston. Might be a better way to kind of start off, but again, take it for what it’s worth.
I think it just depends on your experience level too. What you might have done before that too. Because I know a lot of construction guys that get into our business too. I mean, think about that. Right? You know, they’ve got their own crews, they can build stuff, all they have to now find out is how to finance it and how to bring the money to the table. Some of those guys, I mean, there’s a company called S-two out of DFW. They’re one of the biggest buyers of Texas and he was a construction guy, that was, you know, pretty smart move on his part to get in. He saw he was making money for all of his clients doing all the rehabs- he’s like I could do the same thing. Now he owns like 25,000 units or something stupid in Texas.
speaker 3 01:31
I would say, doing a lot of background. A lot of background on what it’s going to actually take for you to actually get this built. Do you have the right zoning? I don’t know there’s no zoning here in Houston. But like in Austin, I’m doing a development out there their zoning. What do you have to do in order to meet that criteria in order to build. Doing a lot of background is very important. Knowing how much a sheet of sheet rock costs, or how much per square foot is going to cost you to actually build these out. Sometimes, and sometimes you’ll be surprised you will actually come up cheaper than buying a complex. That’s rehab-able, right.
This is normally in class A areas, in class C’s already kind of depreciate and stuff like that. But if you’re looking to buy in that in that class A area, it may just be that you can build a small multifamily or something like that instead. There’s also I’ll give you guys another tip. In the city of Houston, you can own a complex of homes and rent them out. That’s been, that will be known as multifamily, right. You can get multifamily financing. You can actually have up to two units per lot and still have residential, meet residential code for the city of Houston.
That way, you don’t have to have the sprinklers and the open garage and everything like that, that you would need in commercial. If you let’s say you bought, you find a plot of land and then you just kind of divide them up and then put a house or a duplex in every single lot. And then you keep them all for rent, that’s you essentially build a complex for much cheaper than it would cost to actually build commercial.
Chris Bounds 03:14
From Bob and his thoughts on that. There’s some macro thoughts there too. I mean, ultimately, there’s a ton of gold and new construction, we have low inventory, if someone can solve and unprofitable and be profitable and build. They’re good. The money’s there. But they haven’t been doing that fast enough.
03:35
Well, the construction costs have gone up 30% In the last 12 months.
Chris Bounds 03:39
There’s construction, there’s labor, there’s supply chain issues, but even before all that and there’s still financing for new construction there and depending on the city, you got-
03:48
I want to touch on something though, because you just really and I don’t know how we both missed this earlier. One of the reasons why we love just housing in general, right? Is because there’s a freakin shortage of it. Right? You have more and more people moving to Texas, they’re not keeping up with the amount of demand there is. That’s why rents are going up. It’s a purely a function of supply and demand. Right and like you saying the builders aren’t building.
That’s both on the multifamily side as well as the single family side, right. Because the builders are real skittish right now because they got whacked, and eight, nine and 10. They didn’t want to be left holding the bag, so they pulled back too. That just leads to more and more pressure on rents. Right? If you could solve that problem or you already have an existing landlord getting into that kind of ride that wave. That’s another fundamental reason why I love multifamily is because we’re providing housing and there’s a shortage of it here. Right. I think that’s an important thing that people need to take away from tonight’s webinar.
Chris Bounds 04:42
Yeah, it’s easier to solve it at the lower level. You’re building a duplex or quad Plex. I mean, it’s simpler for a single person or small team to take care of that. Or storage container units. I’m about to put one up a Galveston. But then again, new construction, there’s no cashflow. You’re not making anything until it’s completed and either rented it out or sold on the back end. That’s the problem. But from a macro standpoint, I know new construction for single family builders have pulled back, with inflation going up a pullback, it’s like 20-30% or something year over year.
They’re pulling back hard and they’re already behind schedule. Anyway. Multifamily has actually been pushing forward. They’re at a 50 year high, which sounds good, but really what that tells you is like, we’re doing what we are. We’re building what we’re doing. Now, if we were 50 years ago. That’s good. We need to be building more, but there’s still way behind too. Ultimately, there’s just a lot to manage. It’s not building which, again, they will get to live somewhere. If you all know. You’re gonna take advantage of that.