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Rural Rental Housing Development
Development Plan

A New Model for Rural Housing
Over the years, despite high demand, very few high quality, market rate, and workforce supporting apartments have been built in rural communities. There are several reasons for this trend: First, apartments are expensive. Each unit has all of the elements of a house with the additional expenses of common areas and amenities. As a result, a good apartment project, even in a larger city, may only yield a 6 to 8% return on investment. In rural communities it is more challenging, because rent rates are usually lower and the cost of construction is typically higher - materials and specialized labor have to be trucked in from larger cities.

Due to these challenges - and a lack of innovation within the real estate development industry - the majority of rural apartment development has focused on low- to moderate-income housing that relies on government subsidies. In 2013, J Van Sickle and Company (JVSCo) set out on a mission to create a model for high quality, market rate, incentive-free rural rental housing. In December (2013) JVSCo unveiled its new model when it co-hosted the first annual Kansas Rural Housing Conference with the USDA and the Kansas Leadership Center .

Our model: In order to create its innovative new approach to rural housing, JVSCo had to first completely rethink how real estate development is done. To bring down front-end costs, a model was developed where land owners would equity in their land in return for ownership. That eliminated acquisition costs. Then the development team (architect, engineers, contractor, and developer) agreed to invest a significant portion of their fees to become owner partners. That brought down development costs.

 

Once the development costs were minimized, then the construction costs were "value engineered" to maintain quality while reducing expenses. Finally, a completely new management model was developed to reduce operating expenses. Instead of the 4 to 8% of gross revenue, that a management company typically charges, we created a model with a 0% management fee. Our model replaces "property management" with a "customer service" approach, which shifts the revenue stream to a fee-for-services model where tenants pay for optional service amenities (see Multifamily Hospitality). With this final piece in place, JVSCo created a vertically integrated approach to developing high quality, market rate, incentive-free housing in rural communities.