Brett Rentmeester unpacks why renting is becoming the preferred choice for many Americans, making the “build-to-rent” model very attractive to real estate investors. Brett, the Founder and Managing Director of WindRock Wealth Management, joins Wealthion’s Andrew Brill for a thought-provoking conversation on the shifting landscape of real estate in the country.
Welcome to wealthy and I’m your host. Andrew brill, with the stock market having a schizophrenic time of it, there are other investments you can make that will bring a steady income with little downside risk, and we’ll discuss that coming up right now. I’d
Andrew Brill 0:17
like to welcome back Brett Brett Meester from our partner, Ria Winrock. Brett is the founder and managing director of Winrock, and has been investing and directing some of his clients to invest in real estate from a unique angle. Brett, welcome back to wealthion, and glad to have you here.
Brett Rentmeester 0:33
Great to be back.
Andrew Brill 0:34
So let’s get into, I guess, real estate a little bit. And you know, historically, investors have liked to invest in real estate. Can you explain to us why that is the case?
Brett Rentmeester 0:50
Sure. Well, I mean, let me start at childhood. There’s some connection to to being a kid and thinking about real estate that starts with something as simple as a monopoly game, where, if you knew you got Park Place and you put a hotel on it, you were kind of golden in the game. So this concept of being a toll taker on something that’s valuable, and also, as kids throughout our life, we might see, you know, a corner building throughout our whole lifetime, and maybe it’s five different businesses, and the businesses come and go, but the building’s still there. So there’s a certain permanence and stability to real estate that I think draws wealthy people in that are looking to preserve wealth, but also to grow it. So that’s certainly one side of the equation, because rents adjust upward over time with inflation or more, tends to be a great inflation hedge, and hence also a cash flow generator. So it’s a nice balance between protecting against future inflation collecting cash flow now and because it’s been the domain of the wealthy for many years, there are tax policies that favor real estate favorably compared to almost any other investment, and that includes concepts like depreciation. I can write off the cost of the building and take that over time against gains. The idea that if I put, hypothetically, $100,000 in something until I get $100,000 back, that’s just considered my return of capital, no tax. Where, if I put 100,000 in a stock and I get a dividend the next day, I’m paying tax right away on that you’re not doing that real estate. And then you get up to the more elaborate 1031, exchanges and ways to defer, maybe forever gains on real estate. So the tax policy is kind of the extra kicker on top of it.
Andrew Brill 2:38
But it doesn’t have to be just the wealthy. If there’s a, let’s say someone starting out, who’s you know out of college, is working and, you know, not spending a ton of money, you can actually find someplace put a down payment down and start your real estate portfolio, if you will, couldn’t you?
Brett Rentmeester 2:59
Yeah, absolutely. I mean, that’s still very common for people to buy a rental unit and build off of that. I mean, the other avenue, of course, are publicly traded, REITs, so structures, public companies that own real estate, you know, have been much more popular the last 20 years. And then, you know, when you’re talking bigger scale things like owning an apartment building or a retail mall or something, then you’re talking bigger dollars private investing and a little more sophistication. But yeah, all those things are a wide range of what can be done in real estate
Andrew Brill 3:31
and Brett, I know that at Winrock, diversification of a portfolio is important. You’re not putting all your money into equities. You’re not putting all your money into Bitcoin or anything like that. Real estate can actually help you diversify your portfolio a little bit, and it not and not only, as you mentioned, real estate truck, you know, our REITs. If you don’t want to go out and say, okay, you know what, I’m going to own this and rent it out, you can invest in a REIT and still gain some of that benefit, couldn’t you?
Brett Rentmeester 4:01
Yeah, absolutely. I mean, you know, the only caveat with REITs is, because they themselves are publicly traded stocks, they’re going to move around a little more with the volatility of the stock market compared to, you know, if you and I owned an apartment building together, then, you know, we don’t really know what the value is till we sell it, but we’re not going to see that fluctuation. But yes, I think real estate plays a critical role. And, you know, there’s some dynamics at play today that are different than than at many points in the past, post covid, that that I’m sure we’ll get into. How
Andrew Brill 4:32
should a an investor think about real estate? You know, there’s so many different angles, but there’s, there’s, you know, the framework, how should an investor think about, look, you know what? I’m going to get into real estate, but I’m not going to live in that home. I’m going to use that as possibly some income,
Brett Rentmeester 4:50
yeah, and it’s great question, because framework for us is very important. And I think what I would say is, first, let’s put single family homes that people live in on the side. That’s. One category of real estate, it’s a lot of people’s wealth, but that’s not what we’re necessarily talking about here. On the other side of it is any real estate owned by third parties that are rented out. Now there can be, I’ll put those in two categories, real estate catering to more of a business, and real estate catering to more of a consumer. So on the business side, of course, you have things like obvious ones, like office space, maybe even medical data centers. On the consumer side, you’ve got, we use the term multifamily. Multifamily and apartments are an interchangeable term. So multifamily clearly to the consumer retail clearly focused on the consumer, self storage for your extra junk you can’t fit in your apartment or home, you know, clearly to the consumer, and even hospitality or hotels clearly to the consumer. And then you’ve got one last one that’s harder to fit in, which is farmland, an area we like as well, which is just kind of a food production, you know, core asset for an economy.
Andrew Brill 5:59
So where is, and we’re talking about investment properties, so probably places we’re going to run rent out. Where do you see the real estate rental market going? It’s been, look with real with with interest rates, where they’ve been. Rentals have taken over. They’ve really, really risen. You know, on a personal I’m looking for a place for my daughter to live at school for next year. I mean, she just got back classes just started, and I think about next year ready. And the rents are crazy.
Brett Rentmeester 6:34
Yeah, the rents are crazy. And yet, you know, for a lot of people, renting versus buying is still the better choice. You know, I think to answer that question with a slightly larger lens, there have been some big impacts, obviously during covid and post covid. And I think the biggest impact on real estate is looking at maybe the carnage or the negative of what’s happened in large part to big cities, including New York, Chicago, LA, Portland, et cetera, versus the sunbelt states. And I think even today, I was just looking at data that in the 10 largest cities in America, this barometer is showing a 47.2% average occupancy rate in office buildings, so less than half, that’s pretty damning. I mean, it’s, how do you, how do you recover from that quickly? So, you know, I think when we talk about opportunity, you know, on one hand, cities have had kind of a relative short term bounce back because it got so bad, but I think the overhang is still a real problem, because you’ve got huge occupancy issues. You a lot of the cities, crime has become an issue. So now your wealthy residents are leaving in the tax base. And then, you know, just the general cost of living, as you mentioned, it’s not like things are dirt cheap, you know. Okay, I’ll go live in a city there’s more crime, blah, blah, blah, no, it’s, it’s still very expensive. So then on the other side, you’ve got some positives, the industrial space, the warehouses, the Amazon kind of stuff has done very well. Medical has done very well. Challenges, those are priced to perfection right now. So is there an investment opportunity? I don’t know. You’re kind of buying at a point where everybody knows that’s been a good thing. There are a couple opportunities we still think, even though there’s a relative wall that multifamily apartment type living in the sunbelt states is going to continue to do well, I think sunbelt states in general, because they offer, of course, Sunbelt sunshine, they do offer better weather. They do offer more potential for growth, generally better tax policy and generally less regulation. So of course, you know, you’re seeing like Dallas versus California, you know, or Texas California. You’ve seen a lot of jobs move to Texas. Now, Texas has its shortcomings too, but I think thematically, when we look out the next 20 years, we’re still going to see the sunbelt states, you know, kind of dominate the story. Now, there might be some values. You’re seeing some of these office buildings change hands at cents on the dollar, but there’s still a huge overhang. I think we’re still very early in that cycle, and it’s a little concerning.
Andrew Brill 9:13
There’s a, you know, I think that with or and correct me, if I’m wrong, with interest rates starting to come down. There’s a there’s a weird dynamic, because interest rates went to a certain point, but so did home prices. I was reading just the other day that the median home price is over $400,000 right? That price is a lot of people out of the market, but now, with interest rates coming down, usually prices go up, but where is the bubble burst?
Brett Rentmeester 9:43
Yeah. I mean, okay, moving our lens to single family homes for a minute, it has been an unusual period. We’ve we’ve kind of been riddled with this dynamic of, on one hand, inventories are low, and therefore, hey, if you’re moving and you want to get in a school. District and buy a house, you’ve got limited choice, and you’re probably going to bid up to do that. On the other hand, the low rates we had a number of years ago seem to fuel housing to a pretty unaffordable level for most people, at least median income earners. So a lot of these cities, people have been completely priced out of even the entry level house. And because of that, renting has really taken a front seat. And you know, there’s data showing that, on average, it’s much cheaper to rent right now across America than it is to own when you factor in all the homeownership costs. And you know that that condition doesn’t always persist. So I think I would argue single family homes are in a little more of a precarious position, even though the inventory is low right now, if you had a recession or any substantial downturn, I think, I think you’ll see continued weakness. Now you are seeing some weakness in some of the markets. That kind of boom during covid, I’ll call it a cooling off period from Florida to Texas, et cetera. I think that’s temporary, just like the bounce back in cities a bit. I think that’s a little temporary too. I think there’s still, still much more pain to come in urban centers.
Andrew Brill 11:14
So, you know, given the single family home prices and you know, would a correction in single family homes affect multi family, you know, rental units and stuff like that,
Brett Rentmeester 11:28
yeah, yeah. A lot of people kind of think of them as as similar, because it’s people living somewhere, but, but often times they’re driven by different dynamics. And so if homes sold off, people still have to live somewhere. It probably is because there’s a tougher economic environment if single family home values go down and more people are either forced to rent or choose to rent. So I don’t think, I think more often than not, weakness in single family housing is going to be supportive of rental housing. Of course, there are scenarios. Maybe we’re both get hurt a bit but, but I think in general, even though I have a concern that single family housing is overpriced and comes off, you know, I think we’ve been in a little soft period for apartments and multifamily and I think by a lot of data, that’s going to be bottoming this year or next. So
Andrew Brill 12:23
we are here wealthion, and we worry about investing and and Winrock worries about investing and making money and all that stuff. And you want to talk about a new opportunity that seems to be coming along, and that’s build to rent, and that’s a relatively newer thing. But these are places where you’re, you’re seeing some opportunity to make a good amount of money. Yeah, what
Brett Rentmeester 12:47
I’d say is we’re, we’re investors personally, with clients in in this concept built to rent. That’s a terminology that nobody really knew until a couple years ago. It’s been a relatively new term, but we’ve been invested in this concept for over 10 years, and that the simple idea is that a lot like Europe, you know, we’re going to become a little more of a rentership society. That was the premise 10 years ago. And I think, you know, that’s proving true, and for a lot of reasons, part of it is, as you said, Andrew, these homes are so expensive young people, they’re going to have to rent, but there are a lot of people choosing to rent, and they’re choosing to rent for a variety of reasons. And you know, it can range from flexibility of jobs. You know, these young people might be in Dallas for one year of their career and two years in New York, and then they’re in San Francisco. They’re all over, right? So the premise of buying a home and getting settled only really works if you’re there for multiple years. And we’re even seeing it on the older and I think somewhere near two thirds of the rental growth, between 2004 and 2019 was in the age category of 55 years and older. So people are repositioning their lives after 55 they’re following their kids and grandkids. They’re moving to new cities and saying, Well, I don’t really know this area. Maybe I’ll rent for a while first. So with all that said, there’s a more of a demand for rental, but a lot of people still want a home like experience. So the idea of built to rent is building a community from scratch, much like a single family neighborhood, just a little tighter. So picture kind of a wall gated community, and you drive in and there’s a pool and nice central area, and then there’s little casita style one to three bedroom homes. The caveat is, these are just like apartments. They rent like apartments, so you don’t put a down payment down. It’s maintenance free, but it feels like a home in the sense that most units are standalone and have a private backyard. It’s pet friendly. You know, all these things that a home affords you probably get 95% of it in a community like this. So it’s kind of this hybrid concept, maybe the new the new rental arrangement, or the. For a lot of people, as close as they may get to homeownership.
Andrew Brill 15:03
So these are actually single family homes, and they rent just like an apartment would,
Brett Rentmeester 15:11
yeah, yeah, it’s a complete hybrid. So imagine, you know, a lot of times in newer areas, you’ll see a master plan community of a builder. You know, it’s just pure dirt, and they’re building 300 homes to be sold. Imagine that. But now, instead of that, they’re building one of these communities, they’re going to build this all up. These are always meant to be rented, so maybe it still has 300 little casita style homes. It’s always to be rented, so people never buy the home. It’s not that kind of model. It’s like you’re renting it out, just like an apartment, just like an apartment, you’re getting annual rent. A benefit compared to an apartment as you’re building these is they do these things in phases. So you’re moving people in in the first phase, even when you’re working on phase two, three and four, versus if I built a 20 story Tower in Chicago or something, you know, I can’t get people in until it’s completed. And so it is a different concept, and it’s one that’s, I think, really resonating with tenants. They’re one to three bedrooms, but like an apartment, they’re financed like multifamily, or apartments would be, and ultimately, as investors, when you go to sell it, you sell the whole neighborhood. You’re not selling individual units. You sell quote, the whole building, just like you would the high rise. So from an investor point of view, it’s a great way to be in rental real estate, like we were talking about earlier. Some people have ambitions of owning a couple units and renting them out. That’s great, but you’ve still got to be the landlord. You still need a repair person. You need to deal with issues of the property, if you want to be in something kind of innovative in that same lane, something like this, you know, takes those pain points away.
Andrew Brill 16:48
So let me ask you this, about these, these build to rent. So this is really, it’s, it’s almost owned by investors. This isn’t a builder goes in and, like you said, before builds 300 homes, tries to sell the homes. He’s finished the homes. He sold them. He’s out. Now, these are done by, obviously, builders, but the builder is building it for an investor, or a group of investors that are building the same 300 homes, maybe not as big, but they’re going to rent these out for a period of time until they decide, you know what valuable real estate now we’ll sell it off after we’ve made a whole bunch of money. Is that how that works? Yeah, that’s
Brett Rentmeester 17:27
exactly the model. That’s exactly the model. Andrew,
Andrew Brill 17:30
so explain to me the build to rent model. Help us understand the opportunity as an investor behind this,
Brett Rentmeester 17:40
sure. I mean, what I would say is maybe to give a little context to that question, first, renter preferences have changed over the last decade, pretty, pretty remarkably, and we mentioned a couple things earlier, but there’s been a tremendous drain from big cities to southern sunbelt states. So that’s one big change. Second big change is a lot of young people are seemingly preferring the flexible lifestyle of spending money on Dining Out and iPhones and whatever their things they enjoy are over putting all their money in a home or said differently, they’re choosing to rent closer to entertainment and their job, instead of trying to buy a home an hour out on the edge of town. So a lot of those preferences are changing. The other preferences relate to things like pet ownership. Like the communities we’re involved with, something like 70% or more people have a pet. So if you have a pet and you live in an apartment that’s just up and down, there’s not a lot of green space. It’s difficult, right? The other thing is, I’d say similar statistics, 70% plus are female tenants. I mean at least co signing. And so because it’s maintenance free, because it’s a walled, gated, safe concept, and has community, I think it really resonates with a female renter, maybe more, even more strongly than a male renter. So from a investment point of view, you take all this together with these preferences, and you go, whether you’re in Phoenix or Austin or Dallas or Tampa. If you’re looking for a rental option for you or your child, and you’re looking around, it’s kind of apples and oranges you’re going to see, you know, 20 apples, which is conventional apartment living, and one orange, which is, oh, this is different. This feels more like a single family home. It’s got these different elements. There’s a little dog park, you know, things that that may resonate now, it might be a slightly more expensive from an investor point of view. You know, the company we’ve invested with has a pretty good scale at this point, having done over 60 of these across the Southwest, Southeast and. Um, you know, I think it’s back to renting on paper economically is a better option than owning for many people and growing percentage of people. So I think from an investor point of view, that’s the concept. It’s something that’s not going away. You’re probably going to see, we already have seen, but you’re going to see a lot of people mimicking this concept in every major city in America, and at some point, maybe it’ll be 10 to 20% of the rental options will look something like
Andrew Brill 20:26
this. It’s interesting, and I get killed for saying this, the American Dream is the to build wealth, own your own home, mortgage free. At some point, build that equity, and then when you want to move or or retire, you can sell that home and, you know, have money, but that’s changing, isn’t it? Where people are, they’re renting and still putting money away, and they’ve never, they haven’t put that down payment down on a house. They’ve maybe invested that money and done well. So it looks like maybe, and again, I’ll get killed in the comments, and that’s okay, the American Dream is changing a
Brett Rentmeester 21:04
little bit. Well, I don’t know if it’s totally changing as much as it’s just unreachable for many people at the same age. So maybe, maybe you could afford your first home at 25 Well, now maybe someone still can, but maybe they’re 40 now, well, that’s another 15 years of renting. So I’m not suggesting home ownership isn’t a good path. I think it is what’s built America and made communities. Have people taken ownership of their communities? I’m just suggesting that the reality of where prices are at with single family homes is such that many people can’t get there, and this is a close second in the sense that it offers a lot of amenities that feel more like single family home living. You don’t build up equity, though. So as a you know, I would never discourage homeownership. Real Estate’s always local. Someone might find a great local deal, but the national statistics right now is it’s almost $1,000 more per month to rent than own. And that’s across, you know, many cities. It varies by city, but in a lot of cities, I looked at Phoenix recently, 50% more expensive to own relative to rent based based on some of this criteria. So I think people are going to vote with their pocketbooks, so to speak, and when they’re young and have other expenses and are, you know, trying to live their lives and enjoy things. They’re probably going to be renters for a prolonged period. And if you know, we can find an investment that caters to that audience, gives them something I’d call special, closer to homeownership, like feel with the community. You know, I think that’s a good value. You know what? We’re not talking about, just by the way, we’re not talking about big Wall Street firms buying up people’s single family homes and renting them out. Well, you know, I’m not, not in favor of that model. I want, personally, selfishly, homeownership in America to be individuals. This is akin to apartments. It just has a different feel.
Andrew Brill 22:55
So I guess my question is, how do I fund like this sounds like a great investment. I mean, obviously it’s going to give you a return, because there’s rents that continue to, you know, pile up. How does someone like me, an individual investor not working with Winrock? How does someone like me find these things? Or is it usually you have to go through, you know, WinRock or another investment, you know, management company that’s, that’s, has these deals,
Brett Rentmeester 23:25
yeah, I think, you know, again, it’s, it’s, how do you want to approach real estate? There are publicly traded REITs, Real Estate Investment Trusts that trade as stocks, so somebody can find, theoretically, an apartment REIT and that, you know, put a small amount of money in. When you start talking about these private kind of investments and communities, it really is dependent on knowing the space, knowing the operators, and being with the right partners. I don’t want to say all are equal. You know, real estate, as we said earlier, is a very local business. So, for example, the ones we’re involved with they, you know, in Arizona, they have local Arizona teams. In Florida, they have partners in Florida. You’ve got to use local specialists that know the market for renting it out, no building conditions, etc. And so, generally speaking, unless you’re great at your own due diligence. You know, finding finding an advisor or someone that can navigate that space. And you know, one other point, just thinking about due diligence that makes this kind of an interesting, attractive space is private real estate can can take you a lifetime of due diligence, meaning there could be a single property that you’re trying to analyze and see if you should buy it might take you six to 12 months to do the work on that. Then you buy it. Great. Now you’re on to the next one. Start it over. This is a little more of a repetitive kind of assembly line approach to investing, because these communities, although they look and feel and have different local touches depending on the market, different, you know, differences. Uh, conceptually, they’re the same bones inside the same same model. So we think of it more as an assembly line business. I’d say the last real estate concept I recall that did something like this was self storage, which I remember in the early 80s, you started to see this pop up. And believe it or not, here we are, whatever, years later, and it’s still a growth industry. And that was a good example of a rinse and repeat kind of model. If you found the right formula, you could do that in, you know, 100 different markets. And so I think we’re seeing something similar here. So there’s also a benefit to an investor. Of you don’t have to redo the due diligence and rethink it. You have to find a model that’s working, that resonates with you as a good solution, and then you’ve got to take it to different markets. And
Andrew Brill 25:47
if you missed the photos, we put up the photo of what a community might look like that. Brett supplied us with it. And it’s pretty interesting, because as a young child, I used to visit my grandparents every summer, and they were in Florida, in a retirement community. You had to be over 55 to buy into this community, but it looked just the same. There was a there was a community pool, and all the houses looked very, very similar. But you know, it was all people of a certain age or older, my grandparents and you used to just visit, and the houses are very close to each other, but it was your own home. It was a three bedroom home, and it was, it was pretty interesting. So the investment part of it, being able to give you, you know, rental income for, you know, a good period of time is pretty interesting, and that this sort of eliminates the, like you said, the the legwork that you have to do of, you know, going and finding a home, making sure it’s sound, buying it, and then find tenants for it that can be there for a long time. There once you invest in these build to rent places, your work is done. You’ve made your investment. The experts take it from there, and you just reap the benefit, I would assume, right?
Brett Rentmeester 27:02
Yeah. I mean, generally, that’s right, you’re a passive investor, so you’re not, you’re not getting your hands dirty.
Andrew Brill 27:09
So with all these, and this is generally in the south right now, do you see it moving towards the north and places? I mean, you’re in Chicago, I’m here in New York, but I would assume there are places in Illinois, in New York where this would actually work.
Brett Rentmeester 27:26
Yeah, absolutely. The firm we’ve worked with had the premise at the sunbelt states where the opportunity so we’re largely invested in states such as Arizona, Colorado, Texas, Florida, Georgia. You know, those kind of regions. Conceptually, this works anywhere we’ve seen it, where it doesn’t work is in an urban center, because we’d call this low density, meaning you need some land to build this. We’re not going vertical. This isn’t a 40 story tower. So it’s more of a suburban concept. It’s kind of infill suburban, meaning being by job corridors and entertainment and close to the amenities people care about. So I do we have seen a tremendous increase in this. There are many people in the marketplace. The group we’re invested with is one of the early innovators, but I think this is going to be more of a staple of just rental living across America, and you’ll probably see it in your area, if you haven’t by somebody.
Andrew Brill 28:25
So my question Brett and you know, I bought my first home young, and I’m not going to get into age, because you’ll know exactly how old I am, which is old, but does it still pay to buy your home, or is is it, you know, are we torn, turning the page towards, you know what? Economically, you should just rent and figure it out from there. And I think when you you supply this with a chart that’ll let us and when I looked at the chart, I know when I was younger, it definitely paid to buy your home. But what is the trend like now?
Brett Rentmeester 29:03
Well, you have, I mean, it’s based on the data at a point in time, so the criteria to buy a home goes well beyond the economic, you know, thought process, right? Because you might want to be in a school district, you might be starting a family. There’s all sorts of reasons that go beyond the economics, but just the economics today caution that single family home prices are so elevated and interest rates went up, they’ve come down a little bit, but they’re not they’re not at 2% anymore, 2.5% for a 30 year mortgage. So it’s a question of affordability, and it’s still going to make sense for a lot of people to buy a single family single family home. There’s no question. However, I think the data suggests you have to be very careful not to overpay, and you have to be very careful not to over commit and have such a large percent of your income get sucked up in just basic expenses for a home. Without, you know, proper reserves for repairs and if things go wrong. So I don’t think, you know, I don’t think it’s suggesting single family ownership is dead. It’s just flashing a red warning, like, maybe an 06 that values are very, very elevated, and they’ve come up a lot, you know, tremendously, in the last number of years. So it’s, I don’t know. Maybe we’ll be sitting here in three years, we’ll have had a housing correction. It’ll be a great time to buy. So I think it’s kind of a dynamic, uh, process, but right now, looking at the data, there’s definitely caution in the wind to being a buyer.
Andrew Brill 30:33
So what is the forecast for this sector? I obviously, you know, I own a home, but you know, the build to rent and renting, what’s the forecast for this sector?
Brett Rentmeester 30:47
Yeah, well, it’s again, told through the lens of covid. You know, you had a lot of people moving to different cities states that they hadn’t lived so you had a big migration, and you had a lot of Sunbelt areas boom, and a lot of cities hurt, and you had a little reflux of bounce the other way now, where the cities have stabilized a little, and you’ve had a little sell off in some of these other markets. I think you know, over the last two years, there’s been a little pause on activity in a lot of real estate because rates have come up a bit, and rents in general have been pretty flat. Now if you go back to 2022 it was the opposite. Rental rates were up 25% in one year, and rates were low. So things kind of ebb and flow. I think as you look forward, one of the negative overhangs is periods where things get too overbuilt. And a couple of years ago, we were in a period where money was cheap and available and a lot of people could get credit to build things. And that does create the risk that certain areas get overbuilt, or bad projects get put up that compete with yours. I think when we look at the data, it’s interesting. We’ve kind of swept this under the rug. But last spring 2023 we had this, I don’t want to call it, I was going to call it a mini banking crisis, but it was a real banking crisis. It just got swept under the rug so quickly with the bailouts, but Silicon Valley Bank, some of these other banks, but what that led to is a massive pullback of available credit, mainly to people building any type of real estate. So since that peak activity supply is down almost 70% in the first half of this year from that peak level, so the data we look at suggests that maybe we’ve got another year or so of a little bit of absorption, or time it takes to get new units rented up, but by 2026 it’s starting to look like you’ve now got a supply problem in a lot of these growing markets, again, where there’s just not enough units coming to market to rent versus the demand. And in large part that’s because of the financing backdrop. It pulled way back. People can’t get the right credit, therefore less gets built. You don’t feel that immediately. So if that’s a banking crisis in 2023 fast forward three years for the leg of projects getting approved and built, and now you’re in 2026 so I think, I think there’s a pretty bright future in the right markets with the right concept, as you look out a couple of years. So
Andrew Brill 33:22
what is the return on the investment look like now? Is it a a one time return where, okay, we invested X and they’re giving us our money back once this is built? Or do you get ongoing pieces of that, rental properties?
Brett Rentmeester 33:38
Yeah, no. It’s a great it’s a great question, and to break that up. Oftentimes in development, there’s a couple of year cycle of getting things built and leased up. So let’s call that for what we’re doing, on average, two years. At about the two year to two to three year mark, it’s leased up. It’s a full community. Now, you go back to the bank and you say, hey, look, this used to be desert dirt. Now it’s a cash flowing full property. They value it much higher, and you refinance it, and generally kick back a fair amount of money at that point. But again, because of the positive attributes of the tax law, most of that is offset by depreciation or considered return of capital, so you get good amount of your money back in a perfect hypothetical thing, and then from that point on, you’re getting rental income for a number of years until you ultimately exit and sell the building. Now the biggest pop of return will generally be at exit for the communities we’ve been involved with. These are generally two to five year kind of windows of time for getting money back versus there are plenty of real estate deals we look at where someone’s investing in an office building, and it’s a 25 year proposition. So we find a lot of investors that want to be in private real estate. They just don’t want to tie their money up for decades. So I don’t know if that answer. Your question, Andrew, but that’s kind of the profile of it. So
Andrew Brill 35:02
you’re investing, and you say, you get, you get the biggest pop when they sell. But these build to rent units are not being sold.
Brett Rentmeester 35:11
Well, no, that’s not entirely true. I mean, the general, the general idea, is to build them, lease them up, picking out cash flow and then either exit them, either sell specific communities, if the value is right, or what this operator’s done in the past, when rates were low, instead of selling, they were able to do what’s considered a recapitalization, which is, can you bring in other lenders at a low cost, the values are still up, and you kick a lot of the capital out. You know that you would have upon a sale, but you still haven’t sold it. You still own it. And so real estate affords that kind of luxury. Sometimes you’re going to be a seller, sometimes you’re going to have higher appraisals, get new loans, and be able to kick back profits and gains without truly triggering a sale. So I think it’s very dependent on the operating environment, but that’s one of the benefits of real estate. You can kind of play that game for a long time if you want. So
Andrew Brill 36:07
these build to rent communities, they’re actually sold from like, one investor to another. You don’t take a build to rent commune and say, Okay, now I’m going to sell them off as individual houses. I’m
Brett Rentmeester 36:18
not saying somebody hasn’t tried that, but the ones we’ve been involved with, and what I’ve seen in the marketplace, is more like thinking of it as one community. So it might be a neighborhood of 300 rental homes. That’s akin to buying an apartment with 300 rental units that’s 20 stories high. It’s, it’s, it’s financed the same way, similar types of buyers, institutional buyers. So picture one pension fund or institution or even family office wealthy group coming and saying, Hey, we would love to own rental properties in Phoenix. We like the dynamics here, that that might be a buyer,
Andrew Brill 36:54
so that by the whole community, and then they, you know, you cash out. Yeah,
Brett Rentmeester 36:59
that’s right, because, listen, ultimately, there are investors. People don’t want their money tied up indefinitely, I think, and I assume other operators work this way, but the partner we’ve worked with generally will give people choices, like, there might be a point that they refinance, that they can bring in other capital and kick a lot of money out, but still own the property. But if anybody wanted out totally, then you pay them out at that point when there’s an appraisal. So, yeah, real estate offers a lot of those positive dynamics. I mean, you know, there’s still risks. I you know, nothing is no investment is risk free in this world, and we’re in a pretty uncertain world. But I think if you come back to basics, shelter is, you know, a major component. People are going to live somewhere, so you’ve got to find the right location, based on city state policies, etc, that we talked about earlier. You’ve got to find the right location. Where do people want to be relative to the where the jobs are at, where the Entertainment’s at, where they spend time. And you know, you’ve got to have the right operators that can can build it and operate it the proper way for, you know, economic success,
Andrew Brill 38:11
awesome. It seems like a great opportunity. And it’s funny, you you said something that, you know, younger people, they move around. They move jobs to jobs so they don’t want to. I It reminds me of a sport, you know, sports where the now, the anomaly is the player that that plays for one team for their entire career, you know? And it’s almost like, you know, professional sports is taking after the the younger generation now, where doubles from team to team. And, you know, now, kids are moving job to job. I
Brett Rentmeester 38:42
think that’s right. It really permeates across a lot of our society. And even, as I mentioned earlier, even even people that are retiring, that might have in the past just gone to a place in Florida, are now saying, Yeah, okay, we have a place in Florida, but now I’ve got a daughter in Nashville and a son in San Francisco, and we want to be closer to grandkids. So even even those demographics are thinking more flexibly in in our experience. Yeah,
Andrew Brill 39:07
I hope to have grandkids in certain places someday, but that’s a little ways off. But Brett, where can we find the research that you guys do? I know it’s windrockwealth.com where else can we find you guys? Yeah,
Brett Rentmeester 39:19
I think that’s the best portal where we post all our research interviews. I mean, we’re out there on Twitter, we’re out there on LinkedIn. You can find us, but I think a good starting point is windrockwalt.com and
Andrew Brill 39:31
if you’re interested and you want to find out more about what Brett does, certainly hit us up on wealthion.com we will point you towards Brett and Chris and brandy over at Winrock, and they will help you invest in real estate and other things. It’s not just real estate. You’re you. You manage the whole portfolio. So you know, thank you for joining me and talking about this interesting and it’s almost feels like I want to go out and buy more properties, but I’ll reef. Ain’t from doing that for the time being, I still have college and medical school to pay for. So
Brett Rentmeester 40:05
great talking to you. Andrew,
Andrew Brill 40:07
thanks, Brett, appreciate it.
Unknown Speaker 40:08
All right. Take care.
Andrew Brill 40:09
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