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Over the past few years, the housing market has undergone significant changes, with the cost of purchasing a home becoming increasingly expensive. According to data from the National Association of Realtors, the average home price in the United States has hit $366,900, up from $273,000 just a decade ago. Let’s dive into just how much more expensive buying property has become; the US housing affordability index dropped from 167 in January 2020 to 101 today. Therefore, it’s no surprise that so many Americans are watching their dreams of homeownership walk away from them. Homeownership is no longer as attractive as it once was.

As a result of rising home prices, many consumers are shifting their preference from buying homes to remain renters. As renters, they are not responsible for property repairs and maintenance or property taxes, and they tend to have more options on where they can afford to live. This shift has important implications for the housing market and the supply of affordable housing.

The shift towards renting means that a new real estate sector is becoming the hottest topic in investing and developing: build to rent properties.

What is Build to Rent?

Build to Rent (BTR) refers to a real estate development model where apartment buildings, townhouses, or even entire build to rent communities are constructed specifically for the purpose of renting out the units to tenants.

Unlike traditional apartment or condo buildings, BTR developments are owned and managed by a single entity, such as a real estate investment trust (REIT), rather than individual landlords. So, for example, when built to rent communities such as a group of townhomes are finished, instead of selling the individual units, they will be leased and held by a single entity as a long-term investment.

This new form of investing and developing is becoming increasingly popular due to its promise of long-term, stable returns with lower risk compared to traditional real estate investments. Furthermore, their promise of strong returns is based on renters growing preference to live in communities with many amenities.

As the market for build to rent properties continues to expand, there is little doubt of its impact on the housing industry and real estate investors. For better or worse, Renting is now one of the most attractive options for potential homebuyers, and Build to Rent Real Estate Development has become a major player in the game.

With so much potential for strong returns, it’s no surprise that investors are taking notice and getting in on the trend. Investors should keep an eye out for build to rent properties in their area and consider building their own portfolio of BTR investments. With more people shifting from homeownership to renting, BTR is becoming a significant player in the housing industry and will remain so for years to come.

Different terms for build to rent assets and developments.

Because the build to rent model is still relatively new, it can have several different kinds of names. If you read any of the following terms, they all refer to the build to rent industry and development model:

• Build-to-rent homes
• BTR homes
• Build-for-rent (BFR) homes
• BTR properties
• B2R homes

However, the term that’s become most common across the US is BTR. Overall, the BTR industry is quickly gaining traction and transforming the real estate sector. As the build to rent market continues to grow, it’s important for investors and developers to understand this new asset class and its potential. With the right knowledge and a strategic plan, investors can capitalize on the trend of build to rent properties.

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What kind of properties are build to rent developments?

The build to rent market is still relatively new, so developers constantly experiment with different types of projects. This could mean converting existing buildings into BTR units or starting from scratch with newly built homes for rent.

Commonly, we build to rent homes are:

• Single-family properties: communities of single-family properties are a popular choice for build to rent developers. These BTR communities present similarly to other new construction single-family developments. The homes have a uniform styling and are all positioned on their own lot. However, unlike other new products, BTR single-family homes remain owned and managed by a single entity.
• Townhomes or Rowhomes: Townhomes are a very popular BTR option because they offer much of the same lifestyle experience as single-family residences, demand similar rental rates, and usually have slightly lower construction costs. Plus, townhomes are a great option for fitting more units on a single property.
• Multi-unit buildings: Apartments, condominiums, and other multi-unit dwellings are common BTR developments. The construction costs can be relatively low, and the properties fit more units than single-family homes or townhomes because they have more vertical potential.

The size and scope of these developments can vary greatly. For example, some BTR communities may be a single development with dozens or even hundreds of units. Others might involve several smaller buildings scattered around a neighborhood or city. Alternatively, a build to rent development can be just a small number of townhomes on a redeveloped lot.

Overall, there is a wide variety of properties that can be used for build to rent developments. Therefore, it’s important for developers and investors to understand all the options so they can identify the best fit for their region and their portfolio.

Does the BTR model influence development designs?

Traditional single-family homes, townhomes, or condo developments are designed and built with prospective homebuyers and independent investors in mind. While it might seem surprising, the end-use consumer BTR properties actually do influence how they are designed and managed.

Build to rent developments are designed with the goal of creating strong relationships with tenants so that they have long tenancies, therefore contributing to lower vacancy rates. Often in traditional rental properties, tenants find that there are resources or amenities that the property lacks. The lacking of amenities in these rental properties pushes them into searching for alternative housing, whether that is through ownership or other rental properties.

One of the benefits of property ownership is that homeowners can renovate and modify their property. When renting, tenants have far fewer customization options. That’s why build to rent properties are designed with more amenities to fulfill or even exceed what tenants might want in a property they own.

The property designs take into account things like lifestyle needs, unit types, amenities, and other factors that influence tenant happiness and longevity at a rental property. For example, developers might choose to include more outdoor spaces for gatherings or host resident events to foster community among tenants. Other possible inclusions are extra storage space, dog runs, or exercise facilities. All of these changes can help BTR properties stand out from traditional rental homes and capture more demand in their local market.

Ultimately, a strong BTR business model will focus on low vacancy rates and tenants who don’t just look at their unit as a rental property but as their home. By designing the property with these elements in mind, developers can create a successful rental business and offer tenants a more desirable rental experience.

Build to rent developers and branded real estate.

Others built to rent communities fall under another growing trend: branded real estate. Branded real estate refers to a type of property that is developed, marketed, and sold under a recognizable brand name or trademark. This could include residential developments, hotels, resorts, and commercial properties that are associated with a particular brand.

The brand may be a well-known company that has expanded into real estate development, such as the Four Seasons or Marriott hotel chains, or it could be a luxury fashion or lifestyle brand, such as Armani or Versace, that has partnered with a real estate developer to create branded residential properties.

Branded real estate is often marketed as offering a unique and premium lifestyle experience with high-quality amenities, services, and design features that are aligned with the brand’s values and reputation. It can also help developers differentiate their properties from competitors and attract a specific target market of buyers or renters who are drawn to the brand’s prestige and reputation.

The build to rent sector is the market solution to housing affordability.

One of the primary reasons housing prices have increased in recent years is a lack of supply. According to a report from the National Association of Home Builders, there is a shortage of 5.5 million homes in the United States. A variety of factors, including a lack of available land, strict zoning laws, supply chain issues, the cost of debt, and a shortage of construction workers, has caused this shortage.

As a result of the housing shortage, the cost of purchasing a home has risen, making it difficult for many consumers to afford a home. This has led to a shift in consumer preferences, with more individuals choosing to remain renters rather than become homeowners.

Over the past three decades, housing across the United States has become increasingly less affordable. Housing prices have climbed significantly, but the average household’s income hasn’t come close to keeping pace. The decrease in housing affordability is felt across most major markets and has left many families and individuals unable to access homeownership, either because they can’t save enough funds for a deposit or because they can’t qualify for the loan. Therefore, renting is becoming the best, if not the only viable option for some.

The build to rent sector is seen as a possible solution to this supply issue. Build to rent developers can provide quality housing options at attainable prices due to their ability to scale and reduce costs. The build to rent model has gained popularity in recent years, as changing demographics and lifestyle preferences have increased demand for rental properties, particularly in urban areas. BTR properties offer benefits to both developers, who can generate steady income streams, and tenants, who have access to high-quality housing.

Build to rent homes are becoming an increasingly popular solution to housing affordability, particularly in urban areas where housing costs can be prohibitively high. These developments are purpose-built rental properties that are owned and managed by large companies, which means they can offer high-quality living spaces at more affordable prices. In addition, because these properties are designed for rental purposes, they often feature an attractive range of amenities such as on-site gyms, communal areas, and high-speed internet, making them more attractive to renters than traditional apartments. Additionally, build to rent developments can provide long-term stability for renters by offering fixed-term leases, which can help to address the insecurity and uncertainty that is often associated with the rental market. Overall, build to rent developments represent the market’s solution to the housing affordability crisis by providing high-quality, affordable housing options for renters in need.

Build to Rent Investment

Built to rent developers create the opportunity for passive investments through syndication and real estate investment trusts (REITs). Investors can help finance the construction of build to rent communities through syndications, and then later can benefit from their cash flow and appreciation by investing in REITs that have BTR assets in their portfolio.

Today, it’s common to see developers and syndicators raising funds for these asset classes. BTRs have grown in appeal as they offer investors a steady income stream, with an attractive risk/return profile. Additionally, some investors view build to rent properties as a safe haven compared to other real estate investments because of their long-term occupancy prospects and stable cash flow.

As the build to rent sector continues to grow and attract more investment, the sector is likely to become even more attractive in terms of returns and stability. This could create an increased demand for build to rent developments in many cities across the United States, allowing more people to access safe and secure housing at a fraction of the cost of buying a property.

Overall, build to rent properties represent an attractive investment opportunity for investors and developers alike, as well as providing a lifeline to those struggling to access housing in today’s increasingly expensive real estate market. By investing in build to rent properties, investors can benefit from attractive returns while also making a positive difference in their communities.

BTR is a buy-and-hold asset.

BTR is an institutional-level investment class for long-term renting. Because it’s almost always new construction, the build to rent model is designed to be a long-term rental asset class, not one that gets on sold within a few years. BTR is becoming an increasingly sought-after investment vehicle for passive real estate investors. They get the benefits and stability of residential property without all the work of finding and managing properties. Investors can make consistent returns on their investments, which makes build to rent investments an attractive option for anyone looking to diversify their portfolio.

The potential for build to rent developments to address housing affordability issues is clear, as it brings the stability and convenience of homeownership within reach. With its increasing popularity among investors, the BTR market will likely continue to evolve to meet changing consumer needs. As more developers enter this space, build to rent developments are poised to become a major force in the rental market, transforming how we live, work, and invest.

The BTR market is an exciting and innovative sector that has already significantly impacted the housing industry and real estate investing. The build to rent market is a unique and rapidly growing industry that has emerged as a viable solution to the housing affordability crisis. Furthermore, it offers an attractive investment opportunity for those looking to diversify their portfolio. BTR promises to revolutionize the rental market by providing high-quality housing options at more affordable prices while still offering a range of amenities and services that can make renting a pleasant experience. The BTR market is here to stay, and investors who understand the nuances of this new asset class can reap significant rewards from their investments.

Why do tenants like BTR properties?

The BTR model typically involves the development of larger-scale properties with a range of amenities and services designed to attract and retain tenants, such as communal spaces, gyms, and on-site management teams. The goal is to create a high-quality living experience that provides long-term stability for both tenants and investors.

Here’s what tenants like about build to rent homes:

1. High-Quality Amenities: BTR properties are newly built homes for rent, meaning that they often come with high-quality amenities such as gyms, communal spaces, and sometimes even concierge services. These amenities can provide tenants with a better quality of life and help them feel more at home.
2. Consistent Quality: BTR properties are purpose-built for rental, and as such, landlords are often more invested in ensuring that the properties are well-maintained and kept in good condition. This can lead to a more consistent level of quality across the property.
3. Flexibility: BTR homes often come with flexible lease terms, which can appeal to tenants who may not be sure how long they want to stay in one place. Furthermore, they are an excellent option for renters who want a home but who aren’t quite ready to commit to purchasing a personal residence. Tenants can be confident that they can continue renting their unit without the fear of a landlord selling the property or reclaiming possession. However, they also can move when it best suits their lives.
4. Stability: The long-term nature of build to rent properties means that tenants can enjoy greater stability and security in their living arrangements. Tenants are more likely to be able to stay in the same property for an extended period of time, as opposed to traditional rental homes where they may have shorter lease terms or more frequent turnover. All in all, build to rent communities offer a unique and attractive option for those looking for stability and convenience.
5. Community: BTR properties often have a sense of community, with shared spaces and communal areas that can help tenants feel more connected to their neighbors and the local area. This can create a more dynamic living environment and foster relationships between tenants, encouraging longer tenancies.
6. Location: Build to rent properties are often located in desirable areas, with easy access to public transportation, amenities, and entertainment. Their locations can make them more appealing to tenants who want to live in a convenient location without having to worry about the hassle of buying a property.
7. Getting out of the rate race: Many potential buyers are tired of bidding wars and the stress of purchasing a property in a high-demand market. Built to rent communities provide a solution that allows them to experience the quality of living they prefer without the hassle of the home purchase process.

BTR homes offer tenants a range of advantages that traditional rental properties may not and can get a great alternative to homeownership, from higher-quality amenities to greater stability and flexibility. These advantages make BTR homes an attractive option for those looking for a more modern rental experience that offers long-term satisfaction. In addition, providing a desirable place to live enables build to rent developers to create an investment asset class that also offers investors attractive yields.

What tenants don’t like about build to rent homes.

While there are certainly advantages to living in build to rent properties, there are also some potential downsides that tenants should be aware of. These may include:

1. Higher Rent: Build to rent homes can be more expensive to rent than other types of properties, as they often come with higher quality amenities, finishes, and services that drive up the cost. Tenants who don’t care for amenities or who don’t make use of them might view their rent as being too expensive.
2. Fewer Choices: BTR properties are often created to target a specific tenant demographic. This can mean fewer choices for tenants who don’t fit into the desired profile or have different needs and expectations.
3. Less Privacy: As mentioned above, BTR developments tend to foster a sense of community between tenants. While this can be a positive for many, it may also sometimes feel like there is less privacy and less individual freedom than in traditional rental homes.
4. Lack of Control: Tenants in build to rent properties may have less control over the property than they would in a traditional rental or owned property. This can include restrictions on decorating, pets, or even shared spaces.
5. Less ‘Character”: BTR properties are typically designed to be modern and consistent in style, meaning they can lack the character of an older building. While this style appeals to many renters, it doesn’t suit everyone’s preferences.
6. Limited Tenancy Rights: In some cases, tenants in build to rent properties may have less protection under tenancy laws than in other types of properties. For example, some build to rent properties may offer short-term leases or have more restrictive eviction policies.
7. Corporate Ownership: Build to rent properties are often owned by large corporations rather than individual landlords. This can lead to a more impersonal experience for tenants and may make it more challenging to build a relationship with the property owner or manager.

Who is building build to rent homes?

In 2022, approximately 5% of newly built homes fell under the build to rent model. Build to rent homes are being produced by a variety of real estate developers, ranging from large companies and institutional investors to smaller local developers. The trend is expected to continue in the coming years as more investors recognize the benefits of build to rent properties as an investment asset class.

Developers of any size can create build to rent communities, but very few of them hold onto them long-term. More often than not, these developments get leased out and then sold to major institutions like REITs. A REIT is a company that owns and manages income-generating real estate properties, such as multifamily properties, commercial buildings, apartments, hotels, or warehouses. REITs are designed to allow individual investors to invest in large-scale, income-producing real estate assets without the need to buy and manage the properties themselves.

Some of the largest REITs that are snatching up build to rent properties include Invitation Homes, Tricon, and American Homes 4 Rent. These REITs allow investors to benefit from their build to rent portfolio through shares and dividends.

However, some developers also allow individual investors to buy units or properties in their build to rent communities. These properties allow private investors to have full ownership of a new construction build to rent home or homes.

Investment returns of build to rent properties.

The returns investors get on build to rent developments heavily depend on when, where, and how they invest their cash.

For example, accredited investors who put their money into a syndication at pre-construction levels have been known to make Averaged Annualized Returns of over 40%. However, syndication investing is only for some, as you must be an accredited investor. Furthermore, this kind of investment comes with a much higher risk because often construction hasn’t even started. If the developer still needs finance, a property to be rezoned, or permits to be approved, then their investors will be waiting years before they see any cash flow on their investment. Lastly, syndication investors need to know they are taking on the risk that development could fail and they will lose their investment.

What if you aren’t an accredited investor?

Investors who don’t qualify for syndications still have the option to invest in build to rent properties through public REITs. These investments come with much lower risks and lower returns but offer more stability for those investors looking for a steady income stream from their real estate investments.

How to own a build to rent investment.

Investors can also choose to invest actively in build to rent properties rather than passively through a syndication or REIT. Active investment in real estate refers to a strategy where an investor actively purchases and manages their real estate investments.

Owning build to rent homes involves actively looking for properties that are about to be built or already exist and then choosing which ones to buy. Making this kind of investment requires more effort from investors, who need to research the local market to find the best deals on properties. Investors will also have to manage the property themselves or find a property manager.

However, some services and companies make this easier, especially if you know where you want to invest. Additionally, some markets, like Florida, are more attractive to investors. This is because they offer more substantial cash returns and appreciation.

What factors should you consider when investing in build to rent properties?

Don’t just dive into BTR investing. When evaluating a build to rent investment opportunity, several important factors must be considered. First, the property’s location is crucial, as it is the top factor influencing rent prices. When evaluating a potential investment, it is essential to take a long-term perspective, looking ahead 20 years to consider if the location will remain desirable.

Next, it is crucial to consider the lifestyle and community appeal of the property and how it meets the needs of the local demographic. BTR investors should aim to invest in properties that cater to the preferences of the millennial demographic, as they represent a significant portion of the renting population. While many millennials are deep into their careers, they are still burdened with student loan debt or are unable to purchase a home. According to a study on the millennial generation, only 37% of millennials are homeowners. However, millennials desire to live in a vibrant community and prefer access to high-quality amenities.

Finally, investors should pay attention to the returns they can expect from their investments. For example, build to rent communities typically offer rental yields higher than conventional rental properties due to strong long-term tenant demand and low management costs. Talk to the developer about expected rental returns and ask to review their investment projections.

Florida, a strong real estate market.

The Florida real estate market is one of the strongest in the US. It offers outperforming real estate investments for several reasons, including the growing population, strong economy, and desirable climate. Here are some specific reasons why investing in Florida real estate can be a smart choice:

1. Growing population: Florida is the third most populous state in the US, and its population has been growing rapidly for several years. According to the US Census Bureau, Florida’s population grew by 14.6% between 2010 and 2020, higher than the national average of 7.4%. Florida has experienced a significant influx of people in recent years, with data from the BEBR indicating that the state added nearly 738,000 residents between April 2020 and April 2022. This growth rate far outpaced that of other states, with Texas and California trailing behind. In fact, Forbes’ analysis of census data showed that Florida had the highest number of people migrating to the state in 2019, beating out all other 50 states. This population growth has driven demand for housing, particularly in desirable areas like Orlando, Tampa, and Miami.
2. Strong economy: Driven by industries like tourism, healthcare, aerospace, and tech, the state’s GDP hit $1.2 trillion in 2021. Plus, companies are flocking to Florida with an unemployment rate lower than the national average and business-friendly policies like low taxes. Today, Florida has a diverse and robust economy, with major industries that create a strong employment market. The state is home to several Fortune 500 companies, and its unemployment rate is consistently lower than the national average. As of December 2022, Florida’s unemployment rate was 2.5%. This strong economic foundation creates stability and demand for real estate investment.
3. Increasing rental rates: In the past year, Florida’s average rental rate increased by an astounding 32.3%. While this level of growth is not sustainable, the rental and housing market is predicted to remain strong through the next five years.
4. Desirable climate: Florida’s warm and sunny climate is a major draw for retirees, snowbirds, and vacationers. The state’s weather makes it attractive for interstate migrants but also makes it a substantial market for short-term rentals. Florida’s climate makes it a good investment market for those interested in building and purchasing investment properties like build to rent homes.
5. Single-family home appreciation: Single-family homes in Florida have also appreciated over the years. According to Zillow, the median home value in Florida was $310,301 as of January 2023, representing a 16.7% increase over the past year. This appreciation in home values has created wealth for homeowners and made Florida real estate a valuable investment for those interested in long-term appreciation. Single-family home appreciation is strongly correlated to growing rental rates in build to rent communities and developments, making Florida an attractive market for build to rent investment.

Build to rent developers in Florida.

Florida’s real estate market has been experiencing a surge in build to rent communities, and several developers have emerged as the best in the state. While some already have experience in the Florida BTR market, others target it for its potential for high returns and long-term appreciation. Some of the developers who are making a big impression on the build to rent market include B2R Direct and NextMetro Communities, ERC Homebuilders, and Onyx + East. These developers are leveraging their expertise in build to rent development and the state’s strong economy and attractive climate to make Florida an attractive market for real estate investors.

ERC Homebuilders is a unique developer creating build for rent communities across several market segments. Their newly built homes for rent are a full-service product that exceeds tenants’ wants and expectations in terms of amenities and finishes. The company is focused on developing a combination of conventional construction, modular, and manufactured housing communities. By offering this diverse range of housing options, ERC Homebuilders is providing newly built properties to rent to the Florida market and becoming a popular choice among investors.

NextMetro Communities is another build to rent developer that has been gaining traction in Florida. Their Avilla community is located in the Tampa metro. Avilla’s newly built homes for rent are tech-enabled and provide tenants with access to amenities like a pool, spa, walking paths, outdoor kitchen, and concierge services. The company specializes in creating multifamily rental communities that are attractive to tenants with modern amenities and finishes. Their focus on providing an exceptional living experience for their tenants means they can charge higher rents, making them a highly desirable option for those looking to invest in build to rent properties.

Onyx + East is another developer that has made a name for itself in the Tampa build to rent market. Currently available to tenants and investors is The Alcove. The company is also launching Black Opal, its build to rent development arm, which offers a full range of development services and builders of high-quality, single-family homes for rent. It’s designed to give tenants a homeownership experience without all of the responsibilities. Currently, Black Opal is available to investors. Onyx + East’s focus on quality has made it a popular choice among renters who are looking for luxury living without the commitment of a mortgage. By leveraging its expertise in developing and managing luxurious rental projects, Onyx + East has become a go-to choice for those looking to invest in build to rent properties.

The BTR industry is rapidly gaining traction and transforming the housing market. As the market continues to grow, investors should keep their eyes peeled for build to rent communities that meet their investment criteria or even consider building their own portfolio of BTR investments. Not only does this new real estate development model promise stable returns with lower risk compared to traditional real estate investments, but it’s also attracting high-quality renters with its promise of luxurious amenities.

Florida is emerging as one of the top build to rent markets. With the right developer and property management team, investors can benefit from the state’s strong economy, growing population, rising rental rates, and appreciation of home values. Find developers providing an attractive combination of newly built homes for rent with quality amenities and finishes. By leveraging their expertise, these developers can help investors realize high returns and long-term appreciation from build to rent investments in Florida.