Last Updated: February 2024
Construction is arguably one of the most important components of rental real estate. Construction projects can generally be divided into 3 types: New Construction, Renovations or Maintenance .Whether it is ground up construction of a new rental property, or routine maintenance of an existing investment, understanding the construction process is key to achieving success as a rental real estate investor. Below we take a deep dive into the various fields that make up rental property construction.
Rental Property Construction
Rental Property Remodeling
Rental property remodeling refers to the process of making significant structural and functional changes to a rental unit or building. Remodeling completely transforms a space and can include altering floor plans, additions, or other substantial modifications to the property’s existing layout. The remodel process requires careful planning, a clear understanding of building codes, and a considerable investment of time and resources.
Rental Property Renovating
Rental property renovation pertains to the process of revitalizing and updating an existing rental space without making substantial structural alterations. Common renovations include repairing worn-out elements, updating fixtures, repainting walls, or replacing outdated appliances. Through strategic renovations, landlords can prolong the lifespan of their property, improve tenant satisfaction, and increase the rental yield.
Commercial rental units are seldom perfectly built out for a business tenant. As such, business tenants will often request “Tenant Improvement”. Tenant improvements are the customized alterations made to a rental space, to configure the space for the needs of that specific tenant. These tenant improvements can either be delivered as the finished product or an allowance (called a Tenant Improvement Allowance or TIA).
Rental Real Estate Development
Rental real estate development (also called group-up or new construction) is a form of construction that involves taking raw land and building a completely new structure on it. From single family homes, to multi-story commercial buildings, the process typically follows a similar pattern. Ground up real estate construction can be one of the most challenging and time consuming endeavors, but also the most lucrative.
Once you’ve built it, you now need to maintain it. Rental real estate maintenance is the ongoing act of performing repairs, safety checks, and general upkeep throughout a rental property. Rental property maintenance keeps a leased property in optimal condition in terms of functionality, aesthetics, and value preservation through a number of proactive and reactive maintenance tasks.
Construction Materials & Products
Selecting the right products and materials for your rental property investment is an important decision to ensure the project is profitable and long-lasting. These goods are usually divided into 2 categories: Materials (i.e. raw) and Products (i.e. finished):
Building materials, also called construction materials, are the raw materials used in the construction process. They differ from building products in nature by usually being more un-finished in nature. Another way to think of building materials is that they do not provide useful utility until they are assembled into a structure. Examples of commonly used building materials include wood, sand, cement, roofing, etc.
Every piece of rental real estate is built with thousands or even millions of different types of building products and materials. From the cement foundation, to the door handle, each product has its own unique purpose. These are the items commonly found at home improvement retailers such as Lowes and Home Depot.
Contractors & Tradespersons
Who does the construction work on rental properties? Finding the right rental real estate contractors and tradespeople is a much harder task than one may anticipate. The ideal service provider for your rental property would be dependable, honest, affordable and deliver quality work. Unfortunately, this is seldom the case. On average, most are a combination of the few but seldom all in one.
Construction Software & Tools
Construction software assists the entire building process from back-end planning, to onsite construction. With so many moving pieces in a project, it is frequently used for everything for project management, cost estimating, and much more. These products can be used for smaller investors, all the way up to large construction corporations.
In order to easily track and manage maintenance issues on a larger scale, property maintenance software programs can help assign, track and assess maintenance projects. Some property management softwares integrate this feature into their program, but other standalone solutions allow for advanced functionalities.
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Construction finance is the intersection of construction and real estate finance. This topic covers a broad category of all finance related activities in the construction process, ranging from construction loans (also called construction financing) to construction cost management. The countless variables that fluctuate throughout the construction process put immense scrutiny on proper spending of capital during a project. Overspending can bankrupt projects, while vigilant finances can produce very profitable projects.
Other Rental Property Construction Topics
Construction building codes are an important component of construction that ensures safety, health, and general welfare. They vary by state due to different climate-related building standards.
With the price of real estate continually rising, retrofitting aging properties has become a growing trend. This is in contrast to demolishing and reconstructing a new development. Retrofitting is the modernization of critical building systems such as structural supports, heating, ventilation and air conditioning (HVAC), fire-life-safety systems, and other components. Retrofits can be motivated by many different factors. Some cities are requiring older properties to retrofit existing properties up-to new building standards, while other retrofit projects are based off of value-add renovations to drive up revenues.
Rental unit turnover is a regular occurrence in rental real estate and occurs whenever a tenant moves out and the now-vacant unit is prepared for the next new tenant to move in. Depending on the property type and condition, performing a “turn” (i.e. preparing the unit for the next tenant) can either be a simple cleaning or full renovation. As a real estate investor, understanding how to effectively and efficiently turn units can have a significant positive impact on your bottom line.
Whether you only own a single-family house or a multi-unit rental property owner, having a basic understanding of construction tools can greatly help out for repairs and renovations. There are countless different tools out there for virtually any type of property improvement job, but also many different tool brands as well. There are a series of basic tools such as screwdriver, hammer, wrench, etc. but also many trade specific tools such as water shutoff key and electrical voltage tester; which can be a blessing to understand how they function during an emergency.
Rental Property Construction FAQ
What is Rental Property Construction?
Rental real estate construction is any of the processes of building, modifying, or repairing structures that are intended to be rented out in exchange for rental payments.
Where to Buy Materials & Products?
Where do investors buy building materials? As a rental real estate investor, a big component of your budget will be spent at building material supply and home improvement stores such as Home Depot and Lowes. Neighborhood hardware stores are great for smaller specialty items needed ASAP, and regional building material stores such as a commercial plumbing or electric supplier might be a good option for bigger jobs.
What are Construction Jobs?
Rental property construction jobs are an important source of jobs in the real estate sector, as well as the overall job market of a country. Real estate related jobs in this area range from on-site contractors and tradespeople, to back-office engineers and architects. Skilled laborers and tradespeople build and maintain existing rental properties, and also help create new ones by renovating existing rental unit buildings or constructing new ones. Careers in construction offer stability, strong salaries, and the opportunity to be a part of creating something tangible and long lasting.
Where to Find Contractors & Service Professionals?
The best way to find quality contractors is coincidentally word of mouth from other real estate investors. Alternatively, you can use online tools such as service professional directories. Many of these online platforms solve the common issue of finding qualified contractors, installers, repairmen and service technicians at a reasonable price.
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