With a lack of housing supply and a growing population, the build-to-rent strategy (BTR) is a strategy that real estate investors should consider right here in Canada.
There are so many methods to making money in real estate here in Canada. You could buy and flip, buy and rent, use the BRRR strategy (buy, renovate, rent, and refinance), do a rent-to-own, or even get your building license and build new and sell direct to consumer. We’ve really done all of the above, but there is one strategy that is rarely talked about. If you follow us at all, you’ve heard us talk about our Build-to-Rent Strategy (BTR). For us, it has been our most successful real estate strategy to date. We’ve built our own rental properties all across Southwestern Ontario, including cities and towns like Windsor, LaSalle, Lakeshore, and Kingsville. Despite every municipality being slightly different, the strategy has always been successful from a cost perspective, as well as a tenant attraction perspective.
What is build-to-rent?
The build-to-rent strategy is simply building your own rental property by either acting as the contractor, or hiring a contractor on your behalf. This can also be referred to as “purpose built rentals”.
Why Build-to-Rent in Canada?
With supply of housing so low, and immigration set to explode here in Canada, finding single family and multi-family homes will become even more difficult in the upcoming years (can you say, bidding wars!?). Instead of participating in these bidding wars, it may be a better strategy to build your own rental property.
Here are the main reasons why you might want to consider a build-to-rent in Canada:
1. Purpose Built
Because you are building these properties yourself, you can build them to fit the exact purpose you wish to use them for. For example, if you would like to use it as a student rental, you could design the home to fit as many bedrooms as possible. If you are trying to attract a young professional, you may want to add an office to the design. Whatever you feel would make your home a quality rental, you can make sure to add during the construction stage.
2. Higher Class Tenants
New houses attract new tenants. We own both new and old properties, and we can tell you from experience, the new houses always bring in a higher class of tenants. People like shiny and new, and they will pay a premium for that. Higher class tenants means less headaches. They tend to be more likely to pay on time and treat your property with better, because they don’t want to live in a pig sty themselves.
3. Low Maintenance
Everything in a new build is brand new with warranties. That means new roof, new furnace, new air conditioner, and the list goes on. Once the house is built and rented out, you won’t have to worry about that nightmare phone call at 3:00 am in the dead of winter from the tenant panicking because their furnace is broken. You know that with a new build, things like that will still be under warranty for a little while, and the odds of things breaking down is very low.
4. Great Resale Value
We just mentioned that these properties attract our favourite tenants. Well, that also means that they attract our favourite buyers. For example, we build semi-detached homes as part of our BTR strategy. Most multi-family dwellings attract one type of buyer: investors. But with new semi-detached townhomes, we are attracting all kinds of buyers. While we believe you should be going into this strategy with a long-term perspective (build and hold for many years), sometimes you may need the cash for another project. From experience, we had to sell off a few properties to fund other projects. And we received top dollar for every unit we sold. New, multi-family townhomes have great resale value. The demographics interested in them have the money and will spend a little extra for something new or something with functionality. Thus, we find that these will really hold their resale value over the next 30 years.
5. Instant Equity
If you can pull off this strategy correctly, and build efficiently, you can build some massive equity on the home from day 1 of completion. Typically, a builder likes to charge 15-20% on top of the build price for a new home. By using a build-to-rent strategy, you can save this 15-20% markup. In turn, these savings would be the equity you have in the home when it is complete and you go to apply for a traditional mortgage. In a rising market, where some units go for $300,000 – $750,000, this could mean $100s of thousands of equity on day one.
Over the years, the build-to-rent strategy has truly put millions into our pockets between cash flow and resale value.
Using our Build-to-Rent strategy, you can potentially do this with very little money in. I will be upfront and honest, this does take hard work. But the hard work translates to solid equity. In our most successful outing using this strategy to date, after refinancing, we were able to build $106,000 in equity using only $14,000 of our own money. That’s $96,000 of “free” equity for about 5 months’ worth of hard work. Then we rented these townhomes out to some pretty solid tenants that generated $600 per month of positive cash flow. It is easy attracting solid tenants when you have new, clean units in a nice area. This strategy isn’t rocket science; you just need to follow the correct process to do it. The more you do it, the easier it becomes.
Can anyone use this strategy?
Here in Ontario, you will need a Tarion license to build a home for resale. However, there is no rule that says you cannot contract your own house or your own rental property. Thus, anybody here in Ontario can use this strategy. We would assume the same across Canada, but you will want to look into the rules of your province and municipality.
This strategy can be extremely intimidating. But it is not rocket science. Contracting is essentially project management. Yes, having an in-depth knowledge of construction is an asset, but it is not a requirement. You see, you’re not the one physically building the house; you are the one that hires and oversees all the sub-trades that will be physically building the house. Therefore, some of the skill sets that are very helpful when contracting your own build, are the following: planning and organizational skills, ability to multitask, communication and interpersonal skill, ability to stay cool under pressure, strong decision making abilities, the ability to check your ego at the door and negotiating skills. That being said, it is work, and therefore does require a lot of your time and effort. But that time and effort will pay off once you successfully complete your project.
If you would like to learn more about how you can implement this strategy right here in Canada, sign up for our free webinar or take our entire Build-to-Rent course. Or if you just want to hear us talk about it, we were interviewed on Rob Minton’s podcast about our past experiences with BTRs.
Hopefully this inspires you to try something new, helps your real estate business take off, and creates financial freedom!
Vince & Mike