Steve Olson 0:00
With the housing shortage being the way it is, it's never been more important for builders and developers and investors to bring more inventory to the market. We're here to explore that space, and bring to bear our experience in helping develop over 4,000 units across four different states.
I've got Chase Leavitt and Sherida Zenger here with me to help talk a little bit about floor plans. Another really important topic in the Build-to-Rent space. But before we get into that, remember to subscribe on iTunes, and Spotify and follow us on social media
So you're thinking about building a property. You want to build a house, an apartment complex, a gigantic, institutional style, build-to-rent community. Whatever one of these that you're considering, the actual floor plan of your units is going to be really important.
And we know all about building too much or too little, or too efficient of a floor plan. There's a concept when you're designing, when you're doing your architecture, called Value Engineering. We want to design this unit structurally so that it's as cheap as possible to build.
We want to make it a part of this show where we own our mistakes. I think we've got a couple units that have been over-value-engineered. Probably a way for the layman to understand is that as it looks like a military barracks.
So what would make you go from a nice cozy place to live that's custom designed to a military barracks. You've got to be somewhere in the middle. What do you think about that?
Chase Leavitt 2:36
I want to back it up just a little bit. My first thought we're talking about, I guess, floor plans, upgrades we were talking about today is what will the city allow? Right? Isn't that maybe your starting point? Yeah, it has to be right. And so obviously, if you're trying to make as much money as you can, you're probably going to want to get the most density as possible, usually.
But you might be just beating your head against the wall if the city doesn't want that. Or if it doesn't make sense. So understanding the location of the piece of dirt that maybe you found that you're trying to develop or put a project together. And then talking with the city, seeing what their overall general or master plan is and see if it makes sense. So you're not just wasting their time or your time.
Sherida Zenger 3:25
And I think also be open to doing different kinds of product type within a specific location. Right. So maybe you say, Okay, I can do some townhomes, I can do some single family, I need to do some stat flat type of product. So being open to that to get the density that you need, maybe that the city wants.
Steve Olson 3:46
Just because the city wants it or allows it doesn't mean that it's profitable, or what the market needs.
We're giving the city far too much credit there. The more you farm a specific area, the more you're going to realize that there are some cities that are friendly to what you're trying to do and others that it's just a hard stop--you're not going to get anywhere.
We had to let a build-to-rent project go in Caldwell, Idaho, this last week, where they are just not going to give us the density that we need. We can only get quarter acre lots out of that city and there's not a chance that that kind of density is ever going to come even close to working on a build-to-rent product.
So James, our lead developer on it, he's just going to spin it off to a home builder that deals far more appropriate for a home builder than it is for a build for rent project.
So to Chase's point are you going to be able to get the density that you need. I've got one that we're working on right now. Where to get the density, right. We had to sacrifice parking. What that means is a much higher HOA budget to enforce parking, because you can see that that will be a problem down the line.
I mean that kind of parlays into what we talked about on the last episode was development, layout, and amenities.
What will the city allow? So we know they're going to allow up to 120 units,
What's the most effective floor plan? Within that? What are some of the observations and lessons that you've learned as we've thought about floor plans and, and seeing them put into practice,
Sherida Zenger 5:25
I think you need to diversify. I know some areas, we've done two bedroom units, we've done one bedroom units, we've done three bedrooms, we've done townhome, style stacked, but be diverse. If you want to stick with townhomes, then maybe see if there's a way you can do a three and a four bedroom townhome, maybe there's a way you can do a two bedroom townhome, but give people options.
If you have all of the same bedroom count, you're kind of tying your hands a little bit unless that's needed in that specific area. But there are some people that say, I'd pay a little bit less to have two bedrooms, I don't necessarily need three, or, hey, I'm a single guy or gal and I just want one bedroom. So see how you can maximize that in your floorplan layout.
Chase Leavitt 6:06
But I totally agree with you have variety. And you could have a couple different three bedroom layouts if three bedroom is the ticket, and it makes sense for that location. But I know we've done projects where we have three storey three bedrooms, and that's all we had, if we had had a two story, three bedroom and a three storey three bedroom, that would have made a huge difference. So have a little variety. And there's huge, I agree with you on that.
Steve Olson 6:28
You're gonna feel that in your lease up, I think let's say you do your analytics, right, we look at costar a lot. We've even gone into local apartment communities and talk to the leasing agent just to learn about what what are they really seeing here? What one thing that you can tell is, oh, yeah, I have I'm sorry, I have no three bedrooms available until November. I have these four two bedrooms available and we're running a rent special.
What did the market just tell you there? They need three bedrooms? Yes, it's time for some three bedrooms. And we probably don't need as many two bedrooms. And that's that's knowledge that you can look like on apartments, calm or local rental search engines, and you can see what people are charging the Wow, what a leasing agent tells you just off the cuff really, really does reveal a lot. Very valuable. It is very valuable.
Chase Leavitt 7:23
And then taking it just a step further, if you really want to dig into it further, is understanding the city and going either going to meetings or everything's online nowadays is listening to those meetings and seen and understanding. Okay, what's coming in? what's getting approved? And what what does that unit in floorplan breakdown look like?
Steve Olson 7:42
Yeah, yeah, absolutely. I've, I've seen stuff where we've been under construction. And we knew that on our heels was a big luxury class, a apartment community. And so it was tempting, you know, when you when you hit the market with 200 units over a six or eight month period, you're under that pressure to get that lease up?
How do I cut my rents and you know, sometimes that's valuable. Sometimes getting units rented at a discount to get stabilized is the most important thing live to fight another day. But other times, you know, these tenants are going to start seeing units for three, four or $500 a month more than me, I gotta stick to my guns. I'm just leaving money on the table.
We're looking, we're talking about having a diversity of floor plans. I've got 72, three bedrooms, and I've got 45, two bedrooms and 10 Studios. I've got some garages for rent, maybe, right? We've got all that kind of stuff. So we have a diverse community.
What are you thinking about when it comes to the actual layout and the flow of your rental units? What floorplans matter to tenants?
Chase Leavitt 8:55
One thing that we've learned is that we typically don't attract the older couple. The 55 and older. But especially if we put in a 3-story floor plan, are they gonna want to lease that or rent that out? They're more likely to do a 2-story floor plan, or maybe a one bedroom studio, if we're looking for that demographic.
But there's different things that you can learn when you understand this the area and and who your target renter is going to be?
Steve Olson 9:22
Something on that point. We've done some of these 3-story townhouse style units and have a one car attached garage with a driveway. And we would do far less of those, knowing what we know now. I'm thinking of one project in particular that's close to a university. And because those things are 1,800 square feet, they're big units, and they get Packed to the Rafters with college students. So that actually works pretty well. That floor plan. It creates a nightmare on parking. There's a give and take here.
When you fault solve one problem you might create Another thing you have to be aware of that, but I think that if you compare that to some of the other projects we've done we'd much rather have, because a three story unit, no matter how you do that, it doesn't flow very well. It's choppy.
But there is a tenant that is purely concerned with square footage. They don't care about that as much. whereas others say, I'll take 1,300 square feet, but I want it laid out better. Right? And maybe I want a two-car attached garage instead.
Sherida Zenger 10:29
I'm thinking about that three story model. So we did a floor plan back in the day that had a bedroom on the main level. And then you walked upstairs, and it had the family room Kitchen. And then on the third level, were two more bedrooms, two more bedrooms. And we also did a floor plan where the family room was on the main level, second level was a master bedroom, a kitchen and then the top level was to the two bedrooms again.
And I tend to think that people really like the kitchen, the family room together. So some spin that we had to put on that was, hey, some people have used this master bedroom as another family room. And because the rooms upstairs were so large, they use one of those as a master and use the other one as an officer kids room, or they use this one on the second floor. so be cautious of what you're doing there to think of how you would maybe want it and what flows the best because I think that chopping that up was kind of unique and
Chase Leavitt 11:27
funny. Yeah. But even though it is a little bit choppy and more stairs you're getting they're getting more square footage. Plus they're getting that one car garage with with not always but usually a driveway parking spot, which can be huge compared to maybe other comps within the area that don't have a garage.
Steve Olson 11:45
Yeah, yeah. Well, that's funny that you bring that up, you know I'm in in a deal right now in Phoenix. It's 32 townhomes. And to get the density that we needed, it needed to be 32 townhomes.
But the city of Phoenix was driving me nuts right now. And I don't care if they're listening, drive me nuts. They came back and said, you cannot put garage doors on the parking because these are frontload two car garage units are so they were designed.
You can't put those on because you don't have enough extra guest parking throughout. So I'm thinking so somebody rents this unit in this space that's like a garage that has a door into their unit. Any anybody can park there. That's the dumbest thing I ever heard, right? I had some renderings done, I want it last this gonna look right.
I talked to a couple property managers and we said, You know what? People rent apartments all the time where they don't have a garage, and they park in an enclosed space. So we just completed we're just going to deal with it.
And we don't think it's very likely that anybody parks, you know, we're probably gonna assign it anyways, and he can't do it because we know they can park on the street too.
But that comes down to the floor plan and the city and your density. So much of this. Right dictates what you can do. It's easy to nitpick properties that you see a joke about that with my wife, we build a new house recently, and people can criticize a property. But yeah, you don't know the laws of physics and engineering and budget, right? Usually when something doesn't make sense, because you maxed out one of those. And you can't go any further, but I guess we would add the city to.
Let's say you're working with a diverse community. We've talked about some of those different layouts. What about finishes? How do we finish the inside of these units?
Sherida Zenger 13:34
It was up to me, I think everything would be LVT. More so because it's pet friendly.
Steve Olson 13:39
What does LVT mean?
Sherida Zenger 13:40
LVT is "Luxury Vinyl Tile". It's a step up from vinyl flooring, a rolled out cheap vinyl. It's a step up from that and will come in planks (sometimes it does still come in a roll). It's usually it's a thicker. When you're pulling your chair across. It is kind of what I'm envisioning.
I remember having linoleum in a house when I was growing up snag, like chipping it right you believe was a thing? No, I can't believe when my parents bought their house they put linoleum in it again on purpose.
LVT so obviously it's not a wood floor but it's more like a wood floor than a vinyl is Yeah. holds up a little bit better. But I think having pets that could be a huge thing. The problem that you come to is LVT on floor on stairs. I apologize. It can be done but it is really costly.
So that's one thing where you may just consider I'll just put carpet on stairs but I think that's a huge need, or at least in the common areas. I know we've been doing that a lot lately where we put it in family rooms.
You know it's obviously in kitchens and bathrooms, bedrooms, you may still want to stick with the carpet but I prefer it all the way through.
Chase Leavitt 14:51
I think the biggest thing is you really want to take a step back and put your if you're not at attendance some of us might be but if you're not attending or if you're not renting you have to Take your mind there, what is the tenant looking for. And when I used to rent back in back in the day when I was single or newly married, I was looking at cost, right?
Understanding what the costs are going to be to lease it up. And then putting yourself in the mind frame of the tenant, because me personally, I'm probably gonna want some nice things... the quartz, the granite, and sometimes that is gonna make sense. That's what the tenants gonna want, or the stainless Still, the appliances.
It's just a balancing act, I think. Understanding what the tenant wants, where your rents are going to be, in putting yourself in their, in their mind frame of what they're looking for. Does the crown molding really matter? No, that's why we've probably never done it. Some things aren't really going to matter. You're not going to see your your money back for that.
Steve Olson 15:55
Spending an extra $5,000 per door? Does that give you another $100-200 a month in rent? Or not?
I think it goes back to "there's only so much a tenant is going to pay in a certain area". But I think that's hard to tell. People get into the value-add apartment business. They're going to get an apartment. And that's in a way a "build-to-rent" project. You're just repositioning it. But how do you tell.
Chase Leavitt 16:27
It's area specific. It's picking the brains in the minds of property managers. Having a good property manager to say, Okay, what are you seeing here? What are the tenants? What are they expecting? What are they used to seeing? What are they wanting to see in these units to get at least up ASAP? And are they willing to pay X amount for this or that?
Sherida Zenger 16:47
I also think, though, that sometimes if you have nicer upgrades... if we're all building in the same community, and I fully upgrade my unit, and Steve does half the upgrades and chase doesn't do any upgrades, at the end of the day, rents relatively the same. They're going to pick my unit first.
I think having more upgrades does help get you leased up quicker, right, you have less vacancy, but also there comes that breaking point to right where I can pay too much for upgrades and then I'm not even breaking even you chase could be making more money on me more money than me with no upgrades. But I think sometimes that comes into play. So knowing when enough is enough, or what's too much,
Steve Olson 17:28
will because too much also means more maintenance. 100%. Right, you know, you go really nice and tenants just don't care about that stuff. They don't care about a lot of finish work and carpentry and things are just gonna dent it and break it. I've noticed one that and this may change but we've not been doing to tone paint, right? We just whitewash everything because the the maintenance between tenant turns is so much higher that painters time is double.
He's got a mask off all of your finished work or your your base in case. And then he's you know, that's a problem. Right? Those unit terms can be absolutely brutal. And to your point from a little earlier, when we talk about LVT, flooring sherida. I've talked to a couple builders recently that say yeah, we can put it on the stairs.
But it's actually not as low maintenance as you think because there's so many cuts and pieces and tenants are tromping up and down those stairs that it's easier for it to come loose. And frankly to slip right on the stair. So what do you think is carpet on stairs and necessary evil?
Sherida Zenger 18:29
I think it is I we just completed some townhomes for my kids. And I did LVT everywhere in the units. But on the stairs I did do carpet. Yeah, because I wanted it to be a softer,
Steve Olson 18:39
softer, easier to deal with change out maintain. Yeah, but in that kitchen and in the bathrooms, you know where there's liquid, and there's more likely to be problems. LVT is a no brainer. But what about bedrooms? For LVT versus carpet
Chase Leavitt 18:54
Depends on the location. We learned that down in Arizona, that it's pretty common to keep your shoes on right? The tenant keeps their shoes on. And so it might make a little more sense to have the LVT or the hard surface throughout versus the carpet. Yeah.
Sherida Zenger 19:12
And the hard surface stays cooler than a carpet what I know that sounds weird, but it does have a it's a cooler. Yeah, I mean you're on the floor versus the carpet with the pad and even some of the hidden
Chase Leavitt 19:25
Here's a fun one. What about washers and dryers? A lot of the areas that we go in, it's pretty common for the tenant to bring in their own washer and dryer. There's some pros and cons to where--well shoot if you have a bunch of tenants bringing up these washer and dryers up the stairs. It's gonna get real beat up which is very likely to bring a couple extra dents or who knows what.
We've had some investors that want to bring in their own washer and dryer and provide that "upgrade or amenity" for that tenant. But at the same token, it could cause or lead to more liability for that owner or the investor, if they provide their own washer and dryers.
Steve Olson 20:08
It's another thing to fix.
Sherida Zenger 20:14
We talked to our insurance guy and he had mentioned that the tenants insurance actually covers more if something were to happen with the washer and dryer than the owners insurance. So that was the big key for our decisions.
I just recently had a gentleman told me that he wants to put TVs in his units. And I said, that is not a smart move.
Steve Olson 20:41
With the washers and dryers, we create another asset that you have to maintain. If it breaks, right, and it floods, then that's on you. Whereas most tenants have to get tenant insurance. And they're thus covered.
Let's talk about smart homes. This is a trend in rental investments and even single family that seems to be pretty standard across the board in new communities, at least.
Chase Leavitt 21:09
We're starting to see that more and more. A smart home, what's gonna be included in that?
You could have the keyless entry, a camera on the doorbell where tenants can see who's at their front door from their phone. And then most likely some sort of a smart home panel within that unit. Just like an alarm panel. The alarm can be set up or or not, but some sort of a smart home panel. And a smart thermostat.
Sherida Zenger 21:41
The other thing that's big right now, too, are the garage door openers that have that MyQ technology. And I'm like so if you have you know, garage door opener that has that it's kind of nice, you can do it from your phone as well.
Steve Olson 21:52
And that's not as hard to set up as you would think. We have a specific company that a couple of the people that we do this with developed from ground up.
However, there's a lot of companies that can easily go install this smart home package a couple thousand bucks on the front end. And whether you're building like a little duplex in your neighborhood, or a giant project, you could have them come in and wire that and put that in and you can you can usually monetize it.
You can charge a little bit extra rent, say this is a technology fee. It's $50 a month. And usually from that panel, they can upgrade their comcast cable package, they can subscribe to a security system, because you're already hardwired for it.
Sherida Zenger 22:34
Yeah, that makes it nice people.
Steve Olson 22:37
Okay, well, thanks for talking about floor plans. If you have questions, go ahead and put them in the comments and I think we should get a show email address, Preston. Let's get a show email address so people can send in questions to the show. Having good ideas just live on the air.
Thank you again for listening. Please subscribe on iTunes and follow us on social media. And as usual, check with your legal and accounting advisors for any advice that you need. This is the show is meant to be for educational purposes only. We'll catch you next time.