This property used to be ‘home’ to one of my first raised garden beds, but that was until I had the epiphany that; it would be much more cash flow positive, if I’d just build a small house on it, and rent it out instead. So, in 2015, prior to the next gardening season, I deconstructed my raised garden bed, and readied the land for this 930 square foot, 2 bedroom, one bath house.
You see, our town of 11,000+ in rural West Tennessee is in dire need of more housing. Why you ask? Well, many reasons really.
For starters; we are close to the Kentucky Lakes Region where lots of fisherman find satisfaction in trying to hook large-mouth bass and oversized catfish with an array of dubious lures. Here in Tennessee, we embrace the simple, slow-pace sort of life, akin to that of Mayberry, where it’s safe to leave your doors unlocked at night and folks respect your property. Then there’s the business friendly, low-tax environment that make eeking out a small profit though rental property investing a viable option.
Help me track the Return on Investment of my ‘Build to Rent’ Property
With all that taken into consideration, I felt it was a worthwhile opportunity, so I went to the bank to see about a getting a construction loan for my new rental property, and thankfully the banker shared my vision. He agreed with me; the raised garden bed would be less profitable than a small rental property, over the long haul.
At this point I had owned rental property for 12 years, but had never built a home whose sole purpose was to be garnering ‘rental income’. But, since I had $0 land costs, and the demand for housing in my town was bubbling over, I thought it was worth the investment.
My Build to Rent Strategy
The overall economy in 2015 was…shall we say, less than steller. Interest rates were near zero, labor participation was at at it’s lowest mark since 1977, and commodity prices were in a slump. But, as a real estate investor, who finds delight in the notion of being able to generate cash-flow, a build and rent strategy was a sound investment.
I found drawings of this house plan online, and bought the ‘Builders Plan’ set, which came with Foundation Plans, Interior and Exterior Elevation plans, along with a “Cross Section’ image.
This image shows a vertical cutaway view of the house from roof to the foundation with details of framing, construction, flooring and roofing. It was all ready to go, all I had to do was write a $5000 check for lumber and give 2 copies of the drawings to my general contractor, and I was in business.
9-Foot Ceilings are a game changer
The smartest 2 decisions I made on this build was to have it built on a slab, and have 9 foot ceilings. The 9 foot ceilings make a small house feel so much larger. I would certainly consider adding height to your house building project if at all possible. If you have a tall member of the family, it’s a must-have.
9 foot ceilings are a bit more expensive in framing and drywall costs but it makes a world of difference. Because of the high ceilings it makes the main living area appear very roomy, and the kitchen island and L-shaped cabinet layout is highly desirable, with room above the cabinets for accent decor.
Stained Concrete Floors- kids and pets approved
The advantage of building a property to rent, is you get to make decisions which can improve the longevity of the asset. Floor’s for instance, get worn out quickly from the heavy-footed, absent-minded tenants who just don’t treat the home like they would if they owned it.
This is why I have no floor coverings, at all. No carpet, no pre-engineered faux hardwood, no tile, just good ole fashion concrete. However, to make it aesthetically pleasing, I did apply an acid stain to the concrete floors. And let me tell you, it turned out fantastic.
Pro-Tip… If you’re interested in doing Stained Concrete Floors, make sure to apply the acid stain before the drywall is installed. Doing so, will relieve you of the burden of ‘overspray’. Overspray will happen to even to the most sure-handed wand engineers, so please take my advice on this, you’ll thank me later….I promise.
Stained concrete floors are durable, they’re warm enough in the winter and cool in the summer, and the tenants like them. Best of all, they look as good today as they did 7 years ago. I would strongly
recommend, encourage, demand that you do stained concrete floors if you build a property for rent.
How my build to rent strategy has paid off since 2015
This property attracted a great deal of attention because of it’s proximity to a main road. I actually had 3 people stop in during construction and ask me if I was selling the house when it was complete. Their seemed to be a lot of ‘buzz’ surrounding the house, which gave me validation that I shouldn’t have a problem renting it out, when it was done.
My timing was impeccable….though, I shall not take credit for that.
It just so happened I had a friend who decided to build a house, and his current house sold quicker than expected. He, his wife, and two kids needed a place to live during the time of construction on his new house. Problem was, my house wasn’t completed yet.
But the property was close to being finished, so they stayed with his mother for 2 weeks until they could move in. They were great tenants for 8 months, though they will admit, 930 square feet and 1 bathroom for a family of 4 is just too small. However, they didn’t complain and he expressed that they were immensely grateful to have a place to live.
Ever since June of 2015 when my friends moved in, I’ve had a 3 days of vacancy in this house in over 7 years. I wish I could say the same about my short term rental, but real estate investing is not without its challenges.
In the end, I’m glad I built this, I’m actually considering doing it again, this time at the back of my farm, the problem now is finding an available contractor to take on my project. It seems all the contractors in my area have more work to do, than time to do it, but perhaps with interest rates rising, and the constant talk about the ‘R’ word, 2023 will provide an opportunity for another building project.