The Rise of Built-to-Rent Homes (and What It Means for Investors)
By Michelle Clardie on 09/21/2023.
Reviewed by Dan Gatsby.
From September 2021 to September 2022, 68,000 homes were built with the intention of being rented out to tenants rather than sold to homebuyers. This could be the beginning of a new era in housing: the rise of built-to-rent (BTR) homes. In fact, the 68,000 homes built between September 2021 and September 2022 represent a 42% increase in this development model compared to the year prior. The National Association of Home Builders confirms this rising trend, stating that around 12% of single-family homes being developed in the third quarter of 2022 were BTRs.
Being a comparatively new development strategy, real estate investors have several questions about BTR, including:
● How does built-to-rent work?
● What are the benefits of BTR for renters?
● What are the advantages of BTR for investors?
● And how can investors capitalize on this emerging trend?
In this post, we’ll answer all these questions for you.
How Built-to-Rent Works
Quite simply, built-to-rent means that a property is constructed with the intention of becoming a long-term rental. BTR can include property types like duplexes, townhomes, and multi-family homes. But we’re specifically seeing growth in single-family homes constructed as rentals. These homes are meant to appeal to long-term renters who have been priced out of the housing market but do not wish to live in an apartment.
BTR homes typically come with all the conveniences and luxuries of single-family homes. They are generally larger than apartments, often coming with two-, three-, or four-bedroom floorplans rather than the typical one or two bedrooms offered by apartment buildings. They are also likely to include private parking (often in an attached garage), as well as a small private yard.
We’re seeing the development of more BTR communities, which are planned developments consisting of dozens of BTR homes. But we’re also seeing an increase in individual residences being built-to-rent.
Accessibility. As of 2023, 52% of Gen Zers and 57% of millennials who don't already own a home believe they'd need to win the lottery to afford one. BTR gives these generations the lifestyle of homeownership if not the financial benefits.
Maintenance services. Renters are typically not responsible for making repairs. If they have a maintenance issue, they can simply contact the owner or property manager to handle it.
Lower maintenance costs. Most repairs and capital improvements are covered by the property owner, saving the renters from unexpected maintenance expenses.
Amenities. BTR communities might offer common area amenities (like pools or playgrounds) that are too expensive for developers to include in traditional single-family homes.
Increased sense of community. Longer leases mean more stability because the rental rate is locked in for a longer period. This means less turnover in the neighborhood and better opportunities to build long-term relationships with those nearby.
Flexibility. Some people prefer having the option to relocate at the end of every lease term rather than being locked into a decades-long mortgage.
What are the Advantages of BTR Homes for Investors?
There are also several benefits for those looking to invest in BTR homes:
Both long-term appreciation and passive income. Some real estate investments offer either appreciation or passive income. But rental properties offer both.
Higher rental rates than older units or apartments. New construction may command higher rates than older buildings. And offering a single-family home experience can bring in higher rents than apartments.
Lower tenant turnover than apartments. BTR homes tend to attract renters who are looking for long-term stability. This means they are more likely to renew their leases, which minimizes your vacancy losses and marketing expenses required to find replacement tenants when a resident moves out.
Lower repair and maintenance expenses than older homes. Newly constructed homes typically cost less to maintain because there is no wear-and-tear already in effect. Furthermore, many of the appliances and systems will be under warranty for the first several years, meaning that the manufacturer may cover the cost of any repairs needed.
Value-add potential. By building from the ground up, you can create immediate forced appreciation. The value of the stabilized property may be substantially more than your investment in the land and the construction.
Government Incentives. Local government programs may offer construction grants, favorable financing terms, and/or streamlined permitting processes to incentivize investors to fund BTR projects and ease local housing shortages. Even if no other incentives are offered, the tax benefits of real estate investing still apply to BTR investors, helping to boost your bottom line.
How Real Estate Investors Are Capitalizing on the BTR Trend
There are multiple ways to invest in BTR homes.
You could, for example, buy raw land yourself, and have a single-family home constructed on the lot.
If you’re looking for a more passive option that doesn’t require such a large upfront investment, you could consider real estate syndication. Syndication is similar to crowdfunding; your funds are pooled with those from other investors, allowing you to buy a piece of a deal with far less money than you would need to fully fund a project on your own. And, because syndicated projects are professionally managed by a project sponsor, you can invest in BTR homes with no experience, no local industry connections, and no investment of your time or energy.
Don’t let this opportunity pass you by! Whether you decide to build on your own or invest in a syndication project, make your BTR move today.
