Build to rent projects combine the complexity of new construction with the long-term planning required for rental investments. When things go wrong, the cause is often avoidable. Understanding the most common mistakes helps investors structure stronger deals, avoid unnecessary costs, and stay on track from start to finish.
Underestimating the Construction Budget #
One of the most frequent issues is starting with a budget that does not reflect the true cost of the build. Problems occur when:
- Line items are missing or incomplete
- Material and labor costs are based on outdated estimates
- Contingency allowances are too small or nonexistent
- Soft costs like permits, inspections, and utility connections are overlooked
A realistic budget accounts for what the project actually requires, not what the investor hopes it will cost.
Overestimating Rental Income #
Projecting rent that the market cannot support creates problems at the refinance stage. Common causes include:
- Using comparables from stronger submarkets
- Assuming a premium for new construction without local data to support it
- Ignoring vacancy rates or lease-up timelines
Lenders will verify rent assumptions independently, and overstated projections can reduce loan proceeds or delay funding.
Choosing the Wrong Location #
Not every location that works for a flip or resale project works for a rental. Investors sometimes overlook factors like:
- Local rental demand and tenant pool
- Proximity to employment, schools, and transportation
- Neighborhood perception and long-term rent growth potential
- Zoning or HOA restrictions that affect rental use
A property that looks good on paper may underperform if the rental market does not support it.
Failing to Plan for the Refinance #
Build to rent projects typically require a transition from a construction loan to permanent financing. Investors run into trouble when:
- They do not understand DSCR requirements ahead of time
- The projected rent does not support the refinance loan amount
- The property is not stabilized or leased when the construction loan matures
- They have not budgeted for closing costs, rate locks, or lease-up delays
Planning the exit before starting construction helps avoid last-minute problems.
Working With the Wrong Contractor #
Contractor issues are one of the leading causes of cost overruns and delays. Red flags include:
- Lack of experience with ground-up or new construction projects
- Vague or incomplete bids
- Poor communication during the draw process
- Inability to manage subcontractors or inspections effectively
A strong contractor relationship is one of the most important factors in keeping a build to rent project on track.
Ignoring Permit and Inspection Timelines #
Investors sometimes underestimate how long the permitting and inspection process takes. Delays can result from:
- Incomplete or incorrect permit applications
- Local backlog in plan review or inspections
- Unexpected requirements from building departments
- Utility connection scheduling
Building these timelines into the project plan helps prevent unnecessary carrying costs and loan extension fees.
Summary #
Most build to rent mistakes stem from incomplete planning rather than bad market conditions. Underestimating costs, overestimating rent, choosing weak locations, and failing to plan for the refinance are all avoidable with the right preparation. Investors who take time to structure their projects carefully are far more likely to complete on time and transition smoothly into long-term rental ownership. AHL’s build to rent guidelines can help investors understand what lenders look for and how to avoid common pitfalls before they start.