During the last housing boom, Steve Lantz admits he was like a lot of speculators, merrily buying and flipping land after developing it. One of the properties he and four other investors acquired five years ago was an 11-acre tract at Silverado Ranch in South Bakersfield, Calif., where the group, called 6152 Partners, planned to build 53 for-sale homes, ranging in size from 1,200 to 1,600 square feet. Then the local housing market collapsed. The builder and two partners dropped out of the deal. But instead of hunkering down and waiting for market conditions to improve, Lantz, who owns a commercial development company, decided to move forward. He brought in three new partners—which include a framer and a home builder—to complete the project. But instead of offering the houses for sale, the partners are renting them for between $1,195 and $1,349 per month.

Lantz told BUILDER on Thursday that the general contractor on this project, Kern Crafters (which itself was formed by a group of subcontractors), has trenched out the last five houses at this subdivision and should have all of them completed by October 1.

Lantz and his partners—who include Tony Hogg and Brian Alexander, former divisional executives with Lennar who now own Eagle Land Development—initially thought they’d convert the rentals to for-sale properties once the market revived. Now, they’re not so sure. “There’s not one of my partners who doesn’t want to keep these as rentals,” Lantz said.

That sentiment was buoyed by a front-page article about Silverado Ranch that appeared in the local Bakersfield newspaper last month, which generated considerable interest in these rentals, to the point where Lantz said the subdivision is fully rented, with a waiting list “two to three deep.” A rising tide of foreclosures in the area is also creating more demand for rental housing.

This project has no bank financing, so the partners had to come up with between $112,000 and $122,000 per unit, which includes the costs of the permits. So far, returns on their investments have been 11% to 14%, said Lantz. He added that as they’ve been built, the houses have appreciated in value, to between $150,000 and $160,000, “which is unusual for rentals.”

Renters at Silverado Ranch are offered one-year leases for houses whose amenities include granite countertops, mini-blind window coverings, landscaping, and pest control services, said Lantz, who uses a local firm, Professional Realty Management, to screen potential residents and collect rents. An on-site property manager, Justin Eccleston, lives in one of the homes with his wife Victoria, who used to be Lantz’s administrative assistant. “Justin is a trained electrician and can fix just about anything. He and Victoria are also going back to school, so this works out great for both of us,” said Lantz.

The cost of this project was kept down because the roads leading into the community had already been completed and landscaped. In addition, Silverado Ranch has been grandfathered into a local traffic impact fee at $2,187 per unit. However, that particular impact fee since has risen to $13,000, which gives Lantz and his partners pause about how they might develop two other tracts they own, which total 25 acres. One 5.5-acre tract has 28 lots on it, and the other larger tract has 71 lots. Lantz said he’s considered petitioning the town to have the larger tract rezoned for commercial.

John Caulfield is senior editor at BUILDER magazine.

Learn more about markets featured in this article: Bakersfield, CA, Los Angeles, CA.