When he was in his late forties, Brannon Potts realized he was behind on retirement savings. Looking for another source of income, he turned to something he already enjoyed: building from the ground up.
“I love building — being able to put my fingerprint on a lot,” Potts, who grew up in a house his parents built in Fort Worth, Texas, told Business Insider.
In 2020 he started using what he calls a ‘build to rent“strategy: buy land, build rental properties and hold them for cash flow.
Potts said he started with about $15,000 of his own money, which covered the down payment and closing costs for three lots. Today, he owns 14 rental units across eight properties, which appraisal estimates estimate are worth about $3.5 million.
That growth did not happen without debt. Potts financed the construction, and the $3.5 million figure represents the appraised value of the properties, not his equity — although he said the portfolio currently has more than $1 million in equity.
The key, he said, was creating equity during construction by building properties that earned more than they cost him to complete.
He used construction to create equity
Potts’ first project was a fourplex. He said it cost about $447,000 to build and was valued at $595,000 upon completion. Because the completed property was worth significantly more than what it cost him to build, he said he didn’t have to contribute any additional money when the construction loan was converted to longer-term financing.
That spread gave him equity from the start.
“Because I do builds, all of these builds immediately had equity ranging between 20% and 25%,” he said. “So I built wealth without any money coming out of my pocket.”
Potts built these two nearly identical homes as part of his build-to-rent strategy. He plans to expand his portfolio to about 20 units. Thanks to Brannon Potts
The fourplex also generated positive cash flow, which Potts saved and used for future land purchases and projects. He then built a triplex on one of the original lots, followed by additional single-family and multi-family rentals.
“Once I got this up and running, the cash flow funded the purchases of all the other dirt,” he said.
He builds with tenants in mind
As Potts repeated the process, he refined his structures. He’s now built five versions of the same rental property and said each iteration has helped him figure out which features tenants value — and which upgrades aren’t worth the cost.
“I think I’ve optimized it quite a bit,” he said.
He has found that people prefer a two-bedroom floor plan, where the bedrooms are separated by an open kitchen and living room. He also began adding additional work space and storage to the garage after thinking more consciously about the tenants in his market.
“I looked at the area and said, ‘What do people want?’” Potts said, noting that the area has many merchants. With that in mind, he began incorporating built-in workbenches and enough space for a toolbox or extra refrigerator in the garage.
Other features did not justify the extra cost. For example, in his first build, Potts used more decorative embellishments and shiplap than he now considers necessary.
Another rule he lives by: build a space in which he would be comfortable living.
“We’re building this as if my wife and I would live in it if we had to,” he said.
He looks for small ways to improve returns
Potts has also focused on improving its existing portfolio, especially as rental prices in its market have softened somewhat in recent years.
He said operating costs once took up just over 30% of his rental income but now make up about 26% after he focusing on costs such as financing, property taxes and insurance.
A kitchen in one of Potts’ recent rental properties. He says each new project has helped him refine what tenants value. Thanks to Brannon Potts
Even construction decisions can affect these costs. For his two most recent builds, Potts said he spent about $600 extra per home to upgrade to higher-rated impact-resistant shingles after asking his insurer if the change could lower his premiums.
The upgrade saved him about $275 in insurance in the first year. He said: “If you apply that in two or three years, you will have already made your money back. Plus, those roofs will last so much longer.”
For Potts, that’s part of the benefit of repeatedly building and managing his own rental properties: Each project gives him another chance to refine the economics.
He maintains a growing cash reserve
Potts automatically sets aside about 8% of its rental income for vacancies, repairs and larger future expenses. He said the reserve has grown to about $60,000, and his goal is to eventually hold enough cash to cover six months of his portfolio’s total expenses.
Thanks to what he calls his “sleep well” story, “I can weather a lot of storms and I don’t make bad decisions because I’m panicking,” he said.
The reserve gives him time to handle vacancies without rushing to accept a tenant, make repairs properly rather than opting for the cheapest short-term solution, and occasionally finance projects that can add value to a property.
“It actually protects your wealth,” he said. “It gives you time to protect your wealth and make good decisions.”
