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1. What is Build to Rent (BTR)?

What you need to know about Build to Rent (BTR) or Build for Rent (BFR)?

It used to be that residential investors would buy an existing house from another homeowner, then convert a single home to a rental property within a neighborhood of owner occupied housing. Build-to-rent real estate takes rental property investing to the next level by building new homes from the ground-up for the specific purpose of renting to tenants.

Build to Rent (BTR) has been around for a few years now but, in the grand scheme of things, it’s still a relatively new concept.

Build-to-rent projects are large-scale residential developments, almost always suburban sub-divisions, where all the properties are owned and managed by a single entity to be rented out over mid to long-term periods.

The approach is different from the conventional build-to-sell model, where a developer builds residential housing, then sells off each individual home. The end purchaser may be a landlord or owner occupied, but often with a mix.

There are several generally interchangeable terms used to refer to properties such as these:

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

Some of the most common build-to-rent home types include:

  • Single-family homes: Many BTR communities appear to be virtually identical to traditional suburban neighborhoods (often with the addition of community amenities). Single-family BTR homes are individual homes, each situated on its own lot.
  • Duplexes: A BTR duplex is made up of two residential units that are attached.
  • Row homes: A style commonly seen in a city’s urban/downtown areas, BTR row homes are built side-by-side and share a common wall (hence, a “row” of homes).
  • Small lot homes: BTR small lot homes are single-family residences that are constructed on smaller-than-typical lots. For example, a typical lot might measure about 7,000 square feet (including the front and back yards), but a small lot might span 5,000 square feet.

How did Build to Rent become so popular?

Most real estate experts point to the 2008 housing market crash — and the resulting foreclosure crisis — as the key reason real estate has gone through this transition. With millions of homes in foreclosure, real estate investors started buying them, finishing renovations, and then renting them out or reselling them for a profit.

The rental market, once comprised of landlord-owned single-family homes, has transformed into a professionally managed real estate asset class and has grown rapidly since then.

In 2021, 6% of the homes currently being built in the U.S. are BTRs, and it is estimated that the number of BTRs built annually will double by 2024. (The Wall Street Journal – quoted numbers from Hunter Housing Economics)

It’s probably the strongest asset class in this recession, in 2022 interest rates shoot up like crazy, and inflation is through the roof.
If people end up losing their homes, or if they have to downsize to a smaller home, they will want to move into rental homes.

This is going to benefit the larger owners to have a pool of rental homes because there will be more demand for these homes because of the quality of the property management and the consistency of the home product.


2. Tips For New Investors

How can you make money?

BTR homes are finding renters across all demographics, but especially among millennials. Even with a good job and stable income source, many millennials are saddled with student loans, credit card debt and/or a lack of substantial savings. Even in a two-income household, it’s hard for this generation to save the downpayment on a $500,000 home.

Although 92% of millennials consider homeownership a good investment, 48% of young adults say they will delay buying a home because of their student loans (according to a Unison Home Buyer Survey). Many are still building their career as they work to establish, define or stabilize their secular life, making homeownership impractical or even fiscally impossible.

But young people still have a strong desire for more space and a sense of community. These BTR neighborhoods meet all the requirements of tenants, with privacy, quality, comfort and luxury, (gym, laundry, gardens, etc.), offering them the lifestyle they desire to work, play and live, but without long-term financial burdens.

Financing options

While financing across all real estate types has been impacted by rising short- and long-term lending rates, the BTR industry is well-positioned to meet these challenges and maintain momentum. Higher construction and financing costs are offset by rising rents, with annual rents rising considerably in many parts of the country.

Developers also have good access to debt and equity. The number of lenders active in this space is increasing as developers enter new markets and continue to demonstrate business models and performance through successful leases and divestitures.

Many lenders (including the Agency Lenders: Freddie Mac and Fannie Mae) have underwritten and approved the product type for loans, the investor community is able to expect more consistency on debt terms and to more easily model a long-term hold period. As an asset class, BTR has seen exit cap rates that compare well with traditional multifamily assets, with cap rates ranging from 4.75% to 5.5%.

Click here to learn more about Arbor’s financing options.

Click here to learn more about Northmarq’s financing options.

What is your exit?

Finally, exit options, this is one of the questions we always tell investors to ask themselves, and it’s one of our biggest pieces of advice when it comes to buying.

What is your exit, who is your buyer, and what are you going to do next? There are options, there are always options, but you have to know what they are and be prepared.

Buyers are very eager right now, but if you’re in a distressed situation, your buyer pool is a little bit limited because the bill price is pretty big, we’re talking tens of millions that you need to get out, and it’s not as traditional as other asset classes.
It’s not something like a commercial office building where every type of institutional buyer has a manager who is open to owning that asset class at the right price, with the right location, and the right tenant mix. There are a lot of buyers who will buy the traditional real estate asset class, but build-to-rent while it’s trendy and there seem to be a lot of buyers, it’s relatively new.

It’s new, it’s innovative, so if you build something and a few years from now you want to get out, there may not be as many buyers and you have to convince somebody that they have to prepare and invest in the infrastructure to manage it. Buying and financing are the same currency, so if it’s hard to find buyers, it may also be hard to find financing.


3. Advantages

What are the benefits of investing in BTR?

There are plenty of benefits in the build to rent market, we are going to talk about some of the pros this new asset class has, not only for the investors but also for the tenants

  • Combines the financial and leasing flexibility of a rental with the amenities and convenience of a professionally managed property, all while living a single-family home lifestyle (privacy, large yard, etc.)
  • May take business away from single-family home sales and multifamily markets
  • Federal lenders are backing loans for build-to-rent real estate
  • Rents might be higher with smart home technologies and community amenities built into the monthly rent
  • Newly constructed homes have lower maintenance costs than the existing housing stock
  • Build to rent is a scalable investment. You could build a single family residence on a single infill lot, or develop an entire subdivision for build to rent.



4. Disadvantages

What are the drawbacks of investing in BTR?

Like any other asset class, BTR homes come with their own drawbacks – but depending on your goals and priorities, these might not be deal-breakers:

  • Middle and lower-priced homes in markets with low land costs work best for build-to-rent real estate, which may limit development to certain parts of the country
  • Demand for build-to-rent housing often outstrips the pace of construction, making property in some markets hard to find
  • Investors should be careful of rationalizing an expensive deal that doesn’t make sense – build-to-rent housing needs to be the right type of product in the right market
  • May have fewer exit options within pool of buyers
  • Novel concept that may become harder to re-finance in the future



5. Annual Conference

What is the BTRAC? Build to Rent Anual Conference.

The 4th edition of the Build To Rent Annual Conference was this 2022 and unlike in previous years, it lasted two days. Providing more dynamic content and facilitating more networking opportunities than ever before.

BTR sector stayed resilient throughout 2020 and continues to be one of the hottest topics within the industry. Every year Bisnow organizes this event where they bring together the biggest power players in the industry to identify opportunities, build networks, and expand their businesses.

The conference theme delves into strategies focused on People, the Planet, and Profit – as ESG remains top of the agenda for investors and developers.

Organized with a large number of speakers and panels, these are some of the highlights of the 2022 program:

  • The current Build to Rent investment market and predictions for the future.
  • Build to Rent’s role in providing mixed use and vibrant communities.
  • The role of smart tech to increase NOI.
  • Next-generation construction and development trends.
  • The geographical locations opening up new opportunities.
  • Benefits of creating people-first developments.
  • How the sector can deliver a genuinely affordable rental product that works for all income levels.
  • The impact of a generational change in rental habits on pension structures.
  • How living spaces are evolving – trends in the wider beds sector.
  • Global outlook: international learnings.



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