In a world where rent prices are constantly on the rise, many investors are turning to the option of build-to-rent homes. Build-to-rent refers to the process of building housing marketed to renters rather than homeowners. This type of real estate investment can come with higher rates of return and greater income stability, and there are several ways to take advantage of these benefits and minimize risk.
We’ll explore what build-to-rent properties are, the benefits of investing in them, and how you can get started. Whether you’re a seasoned investor or just starting out, read on for all the information you need to make a smart investment decision.
What is Build-to-Rent?
Build-to-rent (BTR) is a type of housing development designed specifically for renting rather than owner occupation. BTR developments are usually large-scale projects built by professional developers and operated by professional property managers.
The key difference between build-to-rent and other types of rental property is that they are purpose-built for renters, with amenities such as on-site gyms, concierge services, and communal areas.
Should You Invest in Build-to-Rent Homes?
As the housing market continues to change, more and more people are beginning to invest in build-to-rent homes. But these properties aren’t a good investment choice for everyone. Here’s what you need to know about the pros and cons of investing in BTR homes before committing your time and resources to a deal.
Advantages of Build-to-Rent
There are a number of reasons why investing in build-to-rent real estate can be a wise move, both for individuals and institutional investors.
- Flexibility. BTR homes can be a flexible investment as you can choose to invest in a single unit or a whole development. This flexibility means that you can tailor your investment to suit your individual needs and goals.
- Higher yields. BTR developments are purpose-built and designed specifically for renters. This means that they usually have high-quality amenities and finishes that make them attractive to tenants and drive higher yields for investors.
- Stable income. BTR properties are usually let on long-term leases (often five years or more). This gives investors the security of knowing that their property will be occupied for the foreseeable future and provides a more stable income stream for investors.
- Capital appreciation. In addition to offering attractive rental yields, BTR developments also have the potential to appreciate in value over time. This capital appreciation can provide investors with a valuable return on their investment.
- Diversification. BTR offers investors diversification away from traditional buy-to-let investments. This can help investors mitigate some of the risks associated with investing in the traditional buy-to-let market.
- Hands-off management. BTR developments are usually managed by professional agents who have experience in the operation of large-scale developments. This can provide peace of mind for investors who know their investment is in good hands.
- More recession-proof than other investments. The demand for rental property is generally less impacted by economic recessions than the demand for other types of property such as owner-occupied homes. This means that investing in BTR can provide a degree of protection against economic downturns.
Disadvantages of Build-to-Rent
As with any type of investment, there are some drawbacks to be aware of before investing in BTR.
- Higher risk than traditional real estate. Many BTR developments are still in the early stages of development, which means that there is a higher level of risk involved. This is particularly true for off-plan investments, where you are investing in a property that has not yet been built.
- May be difficult to sell. BTR developments tend to be large-scale projects, which can make them more difficult to sell if you need to exit your investment early. This is something to bear in mind if you are investing in BTR through a crowdfunding platform, as it may be difficult to sell your shares if the project encounters difficulties.
- Lack of performance data. It’s worth noting that the BTR sector is still relatively young and immature, which means that there is a lack of historical data to assess the performance of this type of investment over the long term.
Demand for Build-to-Rent Housing
There is a growing demand for purpose-built rental accommodation in the US, with more and more people choosing to rent rather than buy a home. A number of factors have contributed to this trend, including:
- Increasing cost of buying a home. House prices in the US have been rising steadily for a number of years, making it increasingly difficult for first-time buyers to get on the property ladder.
- Expansion of the private rented sector. The private rented sector has seen substantial growth in recent years, with more and more people choosing to rent rather than buy a property. This is partly due to the fact that renting can be more flexible and cheaper than buying a home, particularly in expensive cities like New York and San Francisco.
- Growth of the gig economy. The rise of the gig economy (where people are employed on a freelance or short-term basis) has made it harder for people to commit to long-term tenancy agreements. This has led to an increase in the demand for flexible renting arrangements, which some BTR developments can offer.
- Expansion of real estate crowdfunding. With rental real estate becoming increasingly popular, investors are crowding into the space, pushing both rents and home prices higher. This makes individual rentals less attractive, while dedicated rental projects—like BTR—that can be syndicated become a more viable option.
How To Invest in Build to Rent
If you are looking to invest in BTR, there are a number of different options available to you.
Buy a BTR Property Outright
If you have the finances available, buy a BTR property outright. This option gives you more control over your investment, but it is also more expensive and comes with a higher level of risk. Choose a lender with experience in commercial real estate and, preferably, build-to-rent developments.
Invest Through a Crowdfunding Platform
Investors can dip their toes in the BTR market through a crowdfunding platform such as Property Partner or The House Crowd. These platforms allow you to invest small sums of money into BTR developments, which lowers the barrier to entry and protects investors from the risk of developing a community on their own.
Buy Shares in a Real Estate Investment Trust
Another option for investing in BTR is through a real estate investment trust (REIT). This is a type of company that owns and manages a portfolio of BTR properties. REITs are listed on the stock exchange, which makes them more accessible to small investors.
Investing in build-to-rent homes can be a great way to profit from the growing demand for rental properties. However, it is important to bear in mind that this is a relatively new sector and there is a lack of performance data available. Before making any investment, it is important to do your research and seek professional advice to ensure that it is right for you.