Mitigate Risk with Build-for-Rent


by Bruce McNeilage

In early April, I read a well-known real estate web- site and came across an article that discussed potential ramifications of the COVID-19 crisis on the real estate market. In one scenario, the article stated that potential listings will remain low, interest rates will remain low, and homes are likely to maintain their value. Yet, in another section of the article, the author added some big caveats. Rising unemployment could tank the economy. A recession could dampen demand, which could cause home prices to plummet. In short, the author really had no idea what was about to transpire. I can understand why. COVID-19 created a scenario no one had en- countered before. Making a definitive

single-family rental strategy. At the same time, it provides a nice safe- ty net for builders, who otherwise might sit on the sidelines during volatile stretches in the housing market. Under the Build-TO-Rent mod- el, we were wearing multiple hats, including developer and builder. We assumed the risk at every stage of development and construction. Under Build-FOR-Rent, we are contracting with a builder but asking them to shoulder some of the risk. Here’s a look at how it works: BUILD-TO-RENT CREATES END-TO-END RISK FOR DEVELOPERS I’ve been investing in single-family rental homes since 2005, using a

prediction about market direction with the information at hand became virtually impossible. My take-away from the article? No matter how well the market is mov- ing along — and it was still pretty hot pre-virus — real estate investment always comes with risk. As a real estate developer and investor, one of the most important strategies is to mitigate risk wherever and when- ever possible. It’s why my company Kinloch Partners has adopted a new investment model that spreads more of the risk — and perhaps more importantly rewards — to our builder partners. We call it Build-FOR-Rent, rather than Build-TO-Rent, and while it sounds like a small difference in lan- guage, it can make all the difference between success and failure for the

thinkrealty . com | 77

Made with FlippingBook Online newsletter