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In this episode, we're joined by Brock Holliman, founder of Holliman Capital Group, a Florida based build-to-rent construction company.
In today's episode, we discuss how Brock started his career in real estate at the bottom of the market in 2011, his build to rent business model that's attracting investment capital, the current state of the rental markets in Florida, the real estate professional status, and much more.
Brock began with a landscaping business in high school in Memphis, TN. Some of his work was from banks on foreclosed properties. He noticed that so many properties were empty, and there had to be a way to get involved. Brock began checking out foreclosure options and started finding deals to turn around and sell to other investors. He used public records and his phone to source these investors with cold calls.
As the market continued to rebound, Brock wanted to begin doing some rehab and renovation and he realized that Memphis, TN was not the market that he wanted to be in to build a life and career. After bouncing around several different areas, he ended up in Central Florida. Memphis is a huge rental market, and many investors have seen great success in Memphis and other Tennessee cities in the last decade, but Brock prefers Florida for the environment and lifestyle that he desires.
Brock currently operates in the suburb market, where the build-to-rent model still works. Brock goes for high-quality design and materials that fetch higher rents and tenants respect, such as tile flooring, solid wood cabinets, quartz counter-tops, and other modern fixtures.
Why Build 2 Rent?
Building a house for retail purposes vs. building a house for rental purposes depends largely on the area and the number projections for rental vs. sale. Many huge builders use this model, but they have a huge spread in the quality of homes. Brock always builds a home with the intention to rent it out as an investment property. Rental property offers monthly cash flow and appreciation. Brock shoots for the highest quality construction so there is no question about the appreciation potential for 5 or 10 years.
It's difficult to turn down a profit to build and sell a home. However, Brock has his sights set on long-term generational wealth and financial freedom. Sure, he has sold many properties immediately after construction for a decent profit, but looking back, all of those properties are now worth significantly more than they were in 2011-2015. Brock has a line of investors waiting to buy these properties immediately after construction. If anything ever falls through, such as an investor with cold feet or falling out of contract due to financing or the like, Brock automatically keeps all of these homes. He doesn't look to sell them again, he keeps them. Over 50% of the properties have a tenant moving in the same day of the final cleaning.
Current Construction Market in Florida
Supply is very low and demand is very high. Much of this is driven by the pandemic, but not all from the same source. One source is the exodus from large metropolitan areas to more southern suburbs. Another is the demand for building materials from individual homeowners and contractors driven by the stay at home orders - people are looking to renovate and improve their properties.
Over 50% of Brock's applicants, maybe even up to 75%, are from New York. They're leaving small apartments in NYC and starting fresh with a much larger home and more space down south in Florida. You can't build these homes fast enough for tenants or investors, especially when you consider the combination of government stimulus and low interest rates.
Construction Process
Brock had 14 properties under construction when COVID hit. 12 buyers dropped off within a couple of days. Brock doesn't want to change his model and he held tight. He has even continued to use the same open floor plan with 4 bedrooms and 2 baths and uses the same materials and colors across the board for the most part, outside of a few custom homes. This allows Brock to easily scale and eliminate a lot of the time on any repairs or rehab down the line because he knows the appliances, tile, and paint colors are all the same.
If the numbers work for the build to rent model, then Brock knows they will work if the property is not sold. If the numbers still work for the investors, after Brock has taken his profit, then the numbers look great for Brock and his team to take the property straight to the rental market.
Brock uses a uniform construction process and often works with the same builders and subcontractors, especially in framing, plumbing, electricians, and concrete crews. Relationships are built with these teams and they know the work will keep coming.
Tax Strategies
Brock has used many CPAs in the past and was never exposed to any advanced real estate-specific tax strategies. He has recently signed to work with us at The Real Estate CPA, and he is looking forward to taking advantage of cost segregation and bonus depreciation to offset income from the builds that are sold. Additionally, Brock is a real estate professional. Brock must materially participate in his rental activities, and Brock is going to work on documenting these hours in his real property business in the rental activities.
Learn more about Brock and his work: https://hollimancapitalgroup.com/ or email him directly, he gives he email at the end of the show.
Follow Holliman Capital on Instagram: @hollimancapitalgroup
