In several states of America, renting has become more popular than owning a house. Gone are the days when homeownership guaranteed wealth-building; youth and seniors both prefer renting a home nowadays. But instead of renting apartments, many people are going towards build-to-rent homes to be a part of a whole new community.
In 2021, around 6,740 new build-to-rent homes were sold, breaking all the previous records. In fact, 2022 is supposed to be the most fruitful year for this industry, as a recent study expects approximately 14,000 new build-to-rent homes to sell this year. Build-to-rent homes provide the ease of renting along with the benefits of a single-family home.
When developers step in and develop different build-to-rent communities, it offers a whole new lifestyle to live a quality life. So, if you're a real estate investor looking to invest in such communities, this guide will provide you with a deeper look into this concept.
What are Build-to-Rent Homes?
Build-to-rent (BTR) is a popular model in the real estate industry in which an investor purchases a small portion of homes within a neighborhood to rent or sell them afterward. Thus, built-to-rent homes are specifically designed for long-term rentals.
These homes vary from standard apartments, lots, and multi-family structures to serve individuals searching for a long-term rental residence. So, unlike short-term leases, you can spend several years in one house.
When developers are interested in BTR homes, they build multiple build-to-rent homes in the vicinity, creating a build-to-rent community. These are specially designed for long-term tenants who want to access versatile services and luxury that traditional rental options don't offer.
For example, better home maintenance, properly-managed neighborhoods, and aesthetic landscapes. BTR homes require professional management, so the developer must be an expert in this field.
Different Types of Build-To-Rent Homes
Depending on the sizes, styles, and prices, build-to-rent homes can be of different types. The most common ones include:
- Single-family Homes. These are individual homes present in their own lots.
- Duplexes. A BTS duplex consists of two attached residential units.
- Row Homes. These homes are built next to each other, like a row, sharing a common wall. You can spot such build-to-rent homes in your city's urban or downtown areas.
- Small Lot Homes. These are single-family BTR homes constructed on relatively smaller lots of about 600-700 square feet.
What are Build-to-Rent Communities?
Build-to-rent communities consist of several homes constructed especially for long-term renting. They offer a better quality of life, long-term appeal, and maximized value for tenants, developers, and investors.
Every BTR community is developed differently. As a real estate investor, you need to understand how these communities are developed so that you can make the right investment decision. The general steps for BTR community development include:
- First, the developer chooses a site using the available data for rental options, demand, and other critical information.
- Then, they acquire land either on their own or via a partnership with the landowner. The landowner then received a certain amount of profits written in the contract.
- The next step is to finalize other partnerships with builders, investors, and other important parties. Investors should include real estate investment trusts (REITs) that allow buyers to buy a part of real estate for their investment portfolios.
- Homes, community amenities, and other key features, such as open-concept living rooms, additional storage, extra parking space, and high-end furnishing, are completed.
- Finally, the developers offer these BTR homes to the renting market.
Once tenants move in, the developer hands over the maintenance and needs fulfillment responsibilities to a professional property management service.
Why are Build-to-Rent Homes So Popular in America?
Many housing experts consider the 2007 housing market crash the main reason behind the popularity of build-to-rent homes. Millions of homes got into foreclosure in that period, persuading real estate investors to start buying them.
These investors then renovated these homes and made them available for rent or resold them for a profit. This situation transformed the entire rental market into professionally managed BTR communities. The BTR concept has rapidly grown since then.
But why have people accepted the build-to-home model in such a short period? The primary explanation is their immense benefits for every party involved - investors, developers, and tenants. Let's know about some benefits:
Valuable Monthly Rents
Compared to traditional rental homes, the monthly rents for a build-to-rent home gives more value. In renting, many landlords ask their tenants to pay for the maintenance and repair fees, among several expenses, such as cleanliness. These costs add an extra burden on the total monthly rent.
Additionally, numerous other insurances and taxes also come with homeownership or renting, such as property taxes, HOA fees, homeowner's insurance, and more. All these costs add up at the end of the month, making a pretty hefty amount.
On the other hand, there is no particular build-to-rent home insurance. These homes provide freedom from the typical costs of renting and home-owning. Since the developer manages everything, the residents living in BTR communities get more value from their monthly rents.
More and Better Amenities
When you buy a house, you have to deal with anything that might go wrong with it. Apart from that, you also have to take care of the ongoing wear and tear, such as A/C maintenance, backyard maintenance, and much more. So, although it's your own home, you're still paying every day for it. This could also be the case with traditional renting.
However, when you live in a BTR home, you can enjoy several amenities without facing frustration. For example, tenants don't have to deal with any kind of house maintenance expenses.
Instead, they'll be enjoying a nicely-mowed lawn, smooth electricity flow, and well-designed infrastructure. Overall, BTR communities have all the things taken care of, offering you more and better amenities.
High Quality of Life
BTR homes are not just ordinary homes; they are a different lifestyle. Tenants get all the luxury features whether they choose to live in individual homes or a community.
Since all of these homes are built in the same neighborhood, the residents get to know each other and build a different lifestyle with quality features. When you rent a house in a BTR community, you'll be getting a balance of high-end construction and better amenities.
These things work together to provide a high quality of life to the residents. Finding perks like playgrounds, parks, and pools at one place is pretty tricky, especially when it comes to renting a home.
Some Potential Downsides of Build-to-Rent Homes
Like every other renting option, BTR homes also come with some potential drawbacks. A few common ones are:
- Restriction for Making Changes. When you rent a build-to-rent home, you can't make significant changes to the property. This means if you don't like the look of your backyard, you can't change any parts of it. However, you can do so in your own home or a rented house.
- Limited Options Available. Since BTR homes are built with modern infrastructures, they lack the antique aesthetic touch that older homes have. So, BTR homes may disappoint people who prefer a historic charm while buying or renting a house.
- Can Be Expensive. Building-to-rent homes can be quite expensive because of all the luxury facilities and amenities. However, they can be the best bet for people willing to invest a little more money for a quality lifestyle.
Is Investing in a Build-to-Rent Community Worth it?
If you're considering investing in a build-to-rent community, below are some of the reasons why you should go for it.
A Good Source for Passive Income
While being a landlord requires you to be hands-on, it won't be the case if you become a BTR investor. You don't have to put much effort into managing your rental processes since the professional management service would be taking care of it. BTR investment is a great way to put your money in the rental market and yield from it as your passive income.
Less Tenant Turnover
The primary purpose of developing build-to-rent communities is to serve long-term tenants. Unlike standard apartments and lots renting, tenants can live in build-to-rent homes for several years without worrying about searching and shifting to another house. For this reason, people feel more secure while renting BTR homes, leading to less tenant turnover.
A Safe Bet for Investment
Since the BTR market is already well-established and trusted, investing in BTR homes is pretty much a safe bet. Even though all types of investment are like a gamble, the BTR model is a proven, existing model with fewer risks. However, you need to conduct thorough market research before making any decision.
Build-to-rent homes are an appealing option for real estate investors and home-renters. While they offer a quality lifestyle to the tenants, they are potentially more profitable and safe opportunities for investors.
People willing to be a part of a community and enjoy several years in one home, BTR homes are the best bet for them. On the other hand, real estate investors can easily partner up with developers to ensure a source of passive income. If you're looking to invest in BTR homes, you can simply go through the benefits and downsides we listed above to make your decision.