The average person starting out in real estate tends to think about a single-family house. It is what they know, probably grew up in or around, and what seems attainable. Depending on how far you go in your real estate investing, most investors come to the natural conclusion that you need to own a lot of single-family houses to have enough income to support your daily expenses. Then you learn and think even more and realize that multifamily allows you to reach that destination more efficiently. The latest trend combines both single-family with a multifamily aspect: Build to Rent.
What is Build-to-Rent?
Build-to-rent communities look like a regular neighborhood on the outside. If you drove by one you would likely think that people own those homes, but they are professionally managed rental units. It is like an apartment complex but instead of being one or few buildings, they are single-family homes spread through a community. They are gated communities with great amenities like swimming pools and dog parks. Instead of dealing with a mortgage or HOA fees you sign a lease like you would at an apartment building.
The Covid-19 pandemic has fueled the Build-to-Rent trend and now institutional investors are looking at this as a yield play. The single-family market really accelerated over the last couple of years. I have seen my single-family properties go up in value significantly so it would make sense if you could own 100 of them in a professionally managed community.
Institutions Are Assembling
Build-to-Rent communities offer families affordable housing who cannot qualify for a mortgage. It also offers them flexibility to move in the future. It is like renting an apartment but with the privacy of a single-family home. Now that institutions have seen the rapid growth and demand of single-family homes, capital is assembling to develop these communities. More than $10 billion has been allocated to Build-to-Rent over the last few years according to a Yardi Matrix single-family report.
The report also says that 12% of new single-family construction in 2021 is being done for rentals. The affordability gap and rising prices will likely see that number go higher next year. The Build-to-Rent model takes away the pain point that real estate investors in the single-family space feel which is it is hard to manage a portfolio that is spread out.
Investor Opportunity
If you are investing in apartments already then this is another investment opportunity worth looking into or potentially partnering with someone to buy one of these communities. Single-family housing tends to have renters that stay longer than apartments so it could provide great value. This is a great trend for developers as well since they will have control over the quality of the homes and what the community will look like.
Conclusion
Built-to-Rent is an interesting trend to be aware of—it could provide a great investment opportunity. It provides affordable living to families. Most of the opportunities will be in the Midwest, Southwest, and Southeast where there is land is more readily available.
