July RIA Roundup: Build-to-Rent, Record Heat, & Why I Love the Olympics
Greetings, investors! Welcome to the July roundup.
This month, we have a lead story about build-to-rent, which is one of the fastest-growing trends in rental property investing. In a bizarre coincidence, a high school classmate of mine runs a boutique brokerage focused on build-to-rent, so I was able to pick his brain for insights as I researched my article on this topic.
I also provide the most recent data on economic growth, inflation, rent prices, and a summary of other recent news. My final thoughts essay is about the Olympics, and the emotional resonance of human striving.
Enjoy!
Lead Story: Build-to-Rent is having a moment
I work with several turnkey providers in the Memphis market who have provided inventory to me over the years. Quick refresher: a turnkey provider is basically a house-flipper who intends to sell to investors, rather than owners-occupants. (Read more about the benefits & risks of turnkey.) I’ve always been a proponent of the turnkey model, both for me and my coaching clients.
Anyway, a few years ago I started noticing something new from these providers. They had always offered fully renovated homes (aka flips) for sale, but they were starting to offer something else: homes that were newly built with the express purpose of being rentals. I’ve had the chance to tour a few such properties, and they’re great — definitely a higher-end product than even a typical turnkey property. I liked them so much I really wanted to get one for my own portfolio a few years ago, but the timing and inventory didn’t work out. (I ended up settling for regular turnkey properties instead, including Property #21 and Property #23.)
This strategy of using newly built homes as rentals is (rather straightforwardly) called “build-to-rent”, and it’s been exploding in the last few years.
In my latest long-form blog article, I review the build-to-rent model in detail: what it is, how much it’s growing, and why it has proven so successful for builders, landlords, and tenants. I also discuss my own experience with an “almost build-to-rent” property in my portfolio, and share a few ways you can get in on build-to-rent as an investor.
Also on the RIA blog this month:
Portfolio Reports: June was a tough month for my portfolio of 25 rental properties in Memphis. My cash flow was only $1,793, way below my pro forma target. What went wrong? Check out all the details in the June Monthly Portfolio Report.
A new “Property Spotlight”: Feast your eyes on Property #4, which I purchased in May 2019. This marked the beginning of a period of rapid acquisitions around the time I left my corporate career. I review the house, the deal, and all the numbers — including the annual performance of the property in the five years since my purchase.
An oldie but a goodie: Most aspiring investors I speak to are a little scared of buying rental properties in a remote market. “You’re saying I should buy a house 1,000 miles away without ever visiting it?!” It’s a mental leap for sure, but trust me when I say that Remote Investing is Easier Than You Think.
My picks from around the web this month:
Which will make you more money with rental properties, cash flow or appreciation? This video with Chad Carson tackles the topic, but in my view misses the main point: you’ll make lots of money from appreciation in the long run, but it’s impossible to predict when or where prices will increase – so when evaluating deals, it’s best simply to assume that all homes will increase at the rate of inflation.
Author and entrepreneur Scott Galloway appeared on the Moneywise podcast to discuss what it takes to be wealthy, and what you may sacrifice along the way. Listening to this guy talk is NEVER boring.
Remember Magnolia Bakery from Sex and the City? It’s still around, and bigger than ever. Watch how CEO Bobbie Lloyd scaled it from a small West Village shop into a multimillion dollar brand.
|
|
|
|
|
|
In Other News…
Photo Quiz!
Why were these three images in the news recently? Keep reading for the answers…
Real Estate & Business, Domestic News
Rents are rising again – but at a normal pace. Typical US rents were $2,054 in June, up 0.5% from May and 3.5% from last year. These are pretty typical increases, and in line with the seasonal rent bump normally seen during the spring and early summer.
Homes on the market up 23% vs. last year. Listing inventory continues to bounce back from historic lows, but are still 33% lower than pre-pandemic levels.
Inflation cools further. The latest data shows inflation running at just 3% vs. last year, with month-over-month prices actually FALLING slightly. As a result, expectations for an interest rate cut from the Fed are sky high, with most investors eyeing the September meeting.
Luxury department store consolidation continues. Hudson’s Bay Company, the owner of Saks Fifth Avenue, will acquire Neiman Marcus (who in turn already owns Bergdorf Goodman) for $2.65B. Both Amazon and Salesforce will have minority stakes in the new consolidated company, which will be called Saks Global.
Stepped up enforcement at the IRS yields over $1B. Using funds from the Inflation Reduction Act, the IRS has been going after wealthy taxpayers who owe money, resulting in over $1B in collections so far.
Dramatic events reshape the presidential race. First, Donald Trump narrowly survived an assassination attempt at a Pennsylvania rally. (Here’s a useful history of assassination attempts on Presidents and presidential candidates.) Then, President Biden announced he will end his reelection campaign, and threw his support behind his VP, Kamala Harris. The Democratic nominee will be confirmed by delegates at the Democratic National Convention in August.
Senator Bob Menendez convicted of bribery and fraud and resigns. The Democrat from New Jersey accepted lavish gifts in exchange for favorable deals. In addition to jail time, he faced immediate calls from Democrats to resign — which he heeded.
Supreme Court finishes its term with flurry of controversial decisions. As is the norm, the Supreme Court released a series of important decisions to end its term, including overturning the Chevron doctrine, a four-decade precedent that allows agencies to interpret and implement ambiguous areas of law, and granting Presidents wide immunity from prosecution for so-called “official acts”. (I wonder if there’s a former President out there somewhere in need of immunity? Hmm…)
International News, Science & Technology
Global temperatures exceeded 1.5C goal over last 12 months (A). You’ve probably heard that number before: many countries have set the goal of keeping global temperatures from rising more than 1.5 degrees Celsius above pre-industrial levels. Well, over the last 12 months, the number was 1.64C. Not great. Also, July 22nd was the hottest day ever measured across the globe, narrowly edging out the record set…the day before. Climate will likely become an increasingly important factor in market selection for rental property investors.
International elections in the UK and France deliver wins for the left. The UK election swept the Conservatives (who championed Brexit) out of power; Keir Starmer became the new Prime Minister with a huge majority for the Labour party. Meanwhile in France, the far-right National Rally party – after winning the first round of voting -- was dealt a surprise defeat a week later by a coalition of leftist parties, and also finished behind President Emmanuel Macron’s centrist party; no group has an absolute majority, so coalition-building will be required to form a functioning government.
Caribbean islands pummeled by Hurricane Beryl. Grenada, St. Vincent & The Grenadines, Jamaica, Mexico’s Yucatan peninsula, and the Houston area were all severely impacted by the same early-season hurricane. Two small inhabited islands, Carriacou and Petite Martinique, faced almost complete destruction of all structures and vegetation.
Global tech outage caused by faulty code update. The cybersecurity company CrowdStrike released an update to all of its Windows customer that (oops!) caused any computer it touched to crash, resulting in massive global disruption to travel, health care, emergency services, banks, retail, emergency services – basically everything. This predictably renewed calls for “digital resilience” and avoiding “single points of failure”, which is fancy talk for “don’t have a system where one faulty line of code can mistakenly bring down every computer in the world.”
One-year Mars simulation concludes (C). Four NASA astronauts emerged from a simulated Martian environment at NASA’s Johnson Space Center in Houston after more than a year living and working in isolation. The mission was meant to simulate the operation and psychological challenges posed by a crewed mission to the red planet.
Arts & Culture, Sports, and All the Rest
LeBron and Bronny to share the court. LeBron James signed a new two-year contract with the Lakers, and in an NBA first, will play alongside his son, rookie Bronny James.
Finalists for 2024 architecture awards revealed (B). The annual World Architecture Festival announced the list of structures being considered for the World Building of the Year award. (Some really cool ones in there!) The building pictured in the photo quiz is a new hotel in Dubai, one of the shortlisted projects.
“Shogun” and “The Bear” lead Emmy nominations. With 25 and 23 nominations respectively, the two FX shows led the network to its best ever nomination count.
Bob Newhart dies at 94. The stammering, soft-spoken comedian was the star of two hit sitcoms in the 1960’s and 1970’s, and in 1961 his “The Button-Down Mind of Bob Newhart” won the Grammy for Album of the Year, one of only two comedy albums ever to win the award.
The Summer Olympics kick off in Paris. A steady rain couldn’t dampen the party at the opening ceremonies on the Seine. The Olympics are hoping to recapture some magic lost during the pandemic era.
Final Thoughts: Going for Gold
OK, I’ll admit it: I love the Olympics.
Like, REALLY love them — both the summer and the winter games, the opening ceremonies, the personal stories, the national rivalries, the overly dramatic TV coverage, the medal counts, that familiar Olympic theme song, all of it. (Curious where that music comes from? It’s a medley of a theme written in 1958 by the French-American composer Leo Arnaud, and “Olympic Fanfare and Theme” that was written for the 1984 Olympics in Los Angeles by — who else? — John Williams. Here’s a great primer on the history of these musical themes, if you want to dive deeper.)
Anyway — I tape all of the coverage, and watch a pretty alarming amount of it. I don’t just like the marquee events, either — sure, gymnastics and swimming are great, but I’d just as happily watch a fiery badminton match or the jaw-dropping skateboarding competition.
So what is it about the Olympics that draws me in? They have a storied history, of course, which intersects in fascinating ways with political history, technological advancement, and globalization. The spectacle of thousands of athletes from nearly every country assembling peacefully in once place, to compete for the same rewards, is exciting and hopeful and uplifting in a way that few other things are.
But the thing I appreciate most is the maniacal single-mindedness of the top athletes, each of whom at some point in the past made the same audacious decision: “I’m going to be better at this thing than any other human being has ever been.” They decide to swim faster, jump higher, shoot an arrow more accurately, throw a heavy stone further, or play table tennis more skillfully than anyone has before. Many of them devote the better part of their lives to the endeavor.
Amazingly, some of them succeed; inevitably, most fail. But either way, it’s the attempt — the striving — that is remarkable and noteworthy.
There’s something inherently moving about watching a person do something at the absolute highest levels of performance. This also happens outside athletics, of course — an amazing piano player, a skilled glassblower, a chess grandmaster, or the world’s fastest Rubik’s cube solver can all elicit a similar feeling. It’s not the acts themselves, but the necessary preparation (i.e. a lifetime of devoted practice and sacrifice) that makes these things rare and special to behold.
You get a lot of this at the Olympics, which is the main reason I love them so much. For many Olympians, their pursuit requires an all-consuming commitment, and leaves room for little else. This allows them to put on a great show for us, and inspires our awe and admiration — but it also makes us wonder what WE could achieve, how far WE could go, how good WE could get at something, if we pursued it with even half their energy and focus.
They show us what’s possible, and it’s more than we thought.
Happy investing,
Eric
About the Author
Hi, I’m Eric! I used cash-flowing rental properties to leave my corporate career at age 39. I started Rental Income Advisors in 2020 to help other people achieve their own goals through real estate investing.
My blog focuses on learning & education for new investors, and I make numerous tools & resources available for free, including my industry-leading Rental Property Analyzer.
I also now serve as a coach to dozens of private clients starting their own journeys investing in rental properties, and have helped my clients buy millions of dollars (and counting) in real estate. To chat with me about coaching, schedule a free initial consultation.
Free Rental Property Analyzer
You probably know that a well-designed rental property calculator is the most important tool a real estate investor has. It allows you to quickly calculate key metrics and understand your cash returns on a target property. You can also answer questions like:
How much do your cash-on-cash returns improve if you use a mortgage vs. paying in cash?
What will your average monthly cash flow be?
How will your returns change in future years?
Those questions can be easily answered with side-by-side comparisons in the RIA Property Analyzer. I guarantee this is the best free rental property calculator out there today, and many of my readers have told me the same. It’s both powerful and very simple and intuitive to use. Check it out!
