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Everything you need to know about the growing "build to rent" asset class
Build to rent (sometimes called build for rent, or BFR) is a popular investment strategy in commercial real estate because it offers a number of unique advantages over traditional single-family rental assets.
Steady Rental Income
Build to rent properties are typically leased on long-term contracts, which provides investors with a predictable and reliable stream of income.
Lower Risk of Vacancies
Build to rent properties are typically located in areas with strong demand for rental housing, which helps to reduce the risk of vacancies.
Lower Maintenance Costs
Build to rent properties are typically built to higher standards than traditional rental properties, which can help to reduce maintenance costs over time.
Potential for Capital Appreciation
Build to rent properties can appreciate in value over time, which can provide investors with additional returns.
Workflow Efficiencies
In addition to these advantages, the build to rent asset class is also a good fit for many US-based General Partners (GPs) because build to rent properties can be managed more efficiently than traditional rental properties, which can free up GPs to focus on other aspects of their commercial real estate business.
Covercy is the first real estate investment management platform with embedded banking designed for GPs managing complex commercial real estate deals, like build to rent projects.
Covercy offers a wide range of features for GPs that make it easy to manage investors and a variety of commercial property assets, including:
- •A centralized database to store all investor information
- •Investor communication tools to keep investors updated on the status of their investments
- •Automated distribution payments to make it easy to get money to investors
- •Performance reporting to track the performance of investments
- •Integrated FDIC-insured banking for instant ACH transfers to & from investor bank accounts
What's Driving the Growth of Build to Rent Investment Projects?
Increased Demand for Rental Housing
The number of renters in the US is expected to grow by 10% by 2030, as more people choose to rent rather than buy a home. This is due to a number of factors, including the rising cost of homeownership, the increasing number of young adults who are delaying homeownership, and the growing number of people who are moving for work or other reasons.
An Aging Population
The US population is aging, also driving demand for rental housing. As people age, they may downsize their homes or move into retirement communities, often requiring rental housing.
Rising Costs of Homeownership
The cost of homeownership has been rising steadily in recent years, due to factors such as rising mortgage rates and home prices. This has made it more difficult for some people to afford to buy a home, and has led to an increase in the number of renters.
Capital Availability
Institutional investors are increasingly looking to invest in the build-to-rent sector. This is because they see it as a stable and profitable investment, and because they believe that the demand for rental housing will continue to grow in the future.
Tracking the Growth of Build to Rent
Statistics, such as the key rates listed below, show growth trends in US-based build to rent projects accelerating in the coming years.
In 2022, a record 14,541 new build to rent homes were completed, up 47% from 2021.
The National Association of Home Builders (NAHB) estimates that there are currently 44,700 build to rent homes under construction in the US, three times more than last year. The NAHB also estimates that the total value of build to rent investments in the US will reach $1 trillion by 2025.
A recent survey by Yardi Matrix found that the average rent for a build to rent home in the US is $1,700 per month, up 10% from last year. The survey also found that the occupancy rate for build to rent homes is 97%, which is higher than the occupancy rate for traditional rental properties.
Build to Rent vs. Buy to Rent
Build to rent is a type of commercial real estate investment where a developer builds a new property specifically for the purpose of renting it out. This is in contrast to buy to rent, where an investor purchases an existing property and then rents it out.
Build to Rent
Build to rent properties are typically designed to be more attractive to renters than traditional apartments or office buildings. They may offer amenities such as fitness centers, pools, and playgrounds, and they may be located in desirable neighborhoods.
Buy to Rent
Buy to rent properties can be less expensive than build to rent properties, but they may require more work and maintenance. The investor will also need to be more selective about the property they purchase, as it needs to be in a good location and in good condition.
The best option for an investor will depend on their individual circumstances and goals. If the investor is looking for a long-term investment with the potential for high returns, then build to rent may be the better option. If the investor is looking for a more affordable investment with less risk, then buy to rent may be the better option.
To summarize, build to rent is usually a more hands-on approach, as the GP is responsible for the entire process, from finding a location to designing the property to managing the tenants. However, it can also be more profitable, as the developer can control the rent prices and amenities. Buy to rent is a less hands-on approach, as the investor is simply buying an existing property and then renting it out. However, it can also be less profitable, as the investor is not able to control the rent prices or amenities.
Additional Resources
Multifamily Property Tips: What to Consider, What to Avoid & How to Streamline the Process
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