A rising real estate trend in many areas across the country is build-to-rent (BTR) homes and build-to-rent communities. But what are build-to-rent homes, and what are the advantages and potential challenges? In short, build-to-rent homes are properties that are constructed with the sole purpose of renting to tenants rather than selling to an individual homeowner. There are several pros and cons of these build-to-rent communities rising, and this guide will unpack all you need to know about build-to-rent homes.
Build-to-Rent Homes: The Fundamentals
In many areas of the country, families and individuals are looking for homes to rent rather than purchase. Several reasons exist for the rise of build-to-rent homes and communities, such as changing housing trends and demographics.
But what are build-to-rent homes? Build-to-rent homes are newly constructed properties built exclusively for renting. With that said, you now might be asking yourself, “What are build-to-rent communities?” Build-to-rent communities are planned communities that consist of build-to-rent homes. In these communities, you can often find a wide range of amenities for tenants, such as swimming pools, playgrounds, dog parks, and fitness facilities.
Build-to-rent communities are often run and maintained by large real estate companies rather than individual landlords. For real estate investors with access to a lot of capital, constructing or owning a build-to-rent community can be a solid investment that generates relatively passive income. However, build-to-rent homes don’t always need to be in planned build-to-rent communities. Individuals looking for another income stream can build a BTR home in a desirable location for investment purposes, too.
Build-to-Rent Communities: Beyond Individual Homes
Regarding build-to-rent communities, different property types can make up the community. While many include individual homes where renters can enjoy the benefits of living in a single-family home without being a homeowner, there are other property types available, such as:
Row homes: Sometimes referred to as townhouses or terraced houses, row homes are typically found in urban areas and consist of a series of attached dwellings that share side walls, forming a continuous row along a street.
Duplexes: Duplexes are residential buildings divided into two separate living units, either horizontally or vertically, and come with their own entrance. Duplexes offer the ability to generate additional rental income from one property.
Small-lot homes: Small-lot homes are built on smaller-than-average lots to maximize land use in areas where land is limited, such as cities and urban centers. Examples of small-lot homes might be properties with lots around 600 square feet.
The Evolution of Build-to-Rent: A Growing Trend
Build-to-rent communities have steadily risen over the past few decades, especially as demographics and housing trends have evolved. Below are some of the trends regarding the evolution of build-to-rent homes.
Demographic Changes
Over the years, there has been a shifting attitude toward homeownership due to demographic shifts. Younger generations, such as millennials and Generation Z, have preferred mobility and flexibility over the commitment to homeownership, which was accelerated by the COVID-19 pandemic and the switch to remote work.
Additionally, younger demographics are becoming more interested in amenities, such as easy access to pools, fitness centers, and communal lounges. These generations also have different perceptions of financial success. While baby boomers and older generations equated homeownership as a sign of financial success, millennials and Generation Z do not, making them more likely to rent than their older counterparts.
The Role of Finance
Buying a home is one of the most significant purchases you can make. Finance plays a crucial role in the trend of rising build-to-rent communities. Decades ago, the cost of living and home prices were much lower, making the dream of homeownership more accessible to low- and middle-class Americans. Today, with near-historic interest rates and rising home prices, many younger generations can’t afford to purchase a home at the same age as their parents.
Additionally, the build-to-rent model is becoming increasingly popular for real estate investors and developers. It can be a great way to generate steady, long-term income. Build-to-rent communities offer reliable cash flow and can be easily scaled.
Freedom of Choice
Another reason for the rise of build-to-rent communities is the freedom of choice it offers tenants. By renting a build-to-rent home, tenants can enjoy a low-commitment living arrangement and enjoy the benefits of a well-maintained and designed community without the long-term financial responsibilities that come with homeownership. With shared amenities and communal spaces, tenants can benefit from an enhanced living experience and enjoy a sense of community.
Advantages of Choosing Build-to-Rent Homes and Communities
If you’re an individual or family looking for a place to live, you might want to consider a build-to-rent home and community. As with any significant life choice, understanding the advantages and disadvantages is crucial. Below are some of the benefits of build-to-rent homes.
Financial Benefits for Property Developers and Investors
Whether you’re buying your first rental property or are a real estate developer or investor, build-to-rent homes and committees can offer various financial benefits. Some of these financial benefits include:
Predictable income: Once a build-to-rent community is complete and tenants are found, they can produce a predictable and consistent income stream. Unlike traditional homes, where revenue is generated from a singular transaction, build-to-rent homes can offer long-term cash flow.
Economies of scale: Economies of scale refer to the savings one gains from an increased level of production. For developers, build-to-rent communities can help them save money through bulk purchasing materials, a streamlined production process, and shared infrastructure.
Appreciate potential: While build-to-rent homes are constructed to generate rental income, these properties can also appreciate over time if property values increase or the surrounding area becomes more developed and desirable.
Tenant Advantages
As a tenant, build-to-rent communities can be attractive for several reasons. Below are some of the top benefits of build-to-rent homes for tenants:
Amenities: As stated, most build-to-rent communities come with a wide range of desirable amenities, such as pools, fitness centers, communal lounges, and more. Tenants can enjoy these shared amenities without the stress of maintaining them.
Low maintenance: Build-to-rent communities are maintained by the firm that owns the community, which means tenants can enjoy the benefits of living in a planned community without the stress of maintaining the area and the financial burden that can come with it.
Flexibility: A major draw of build-to-rent homes for tenants is flexibility, as they offer a low-commitment housing option that allows them to rent a home for a specified time that works for them.
Builder Advantages
As a builder, knowing the features of a profitable rental property is a must. Build-to-rent homes can offer numerous benefits for builders, such as faster project completion, as multiple units can be built simultaneously, and the potential for repeat business with property management companies and investors. Builders can also benefit from reduced marketing costs because they only need to market the community, not individual homes. Build-to-rent communities can also help diversify their portfolios.
Community Benefits
Build-to-rent communities offer various benefits for all of the residents. For example, build-to-rent communities can help expand housing diversity by providing an alternative to homeownership, meeting the diverse needs of a population with different housing preferences and lifestyles. Additionally, residents of a build-to-rent community can engage with one another, as these communities promote social interaction among residents. This can be great for families with children or individuals new to an area or looking for more social connections.
Is Investing in Build-to-Rent Worth It?
Whether investing in a build-to-rent home is worth it depends on personal factors like your risk tolerance and financial goals. For some, a steady cash flow is desirable because it can help with consistent budgeting and predictable income. For others, the risk of economic downturns or changes in the real estate market can deter them. Looking at costs, market demand, and trends can help determine whether investing in a build-to-rent community is right for you.
Build-to-Rent: The Bottom Line
Build-to-rent homes and communities offer a wide range of benefits for tenants and investors. They can help produce predictable income for investors while giving tenants a flexible housing option with amenities. Whether you’re an investor looking for new properties or an individual or family looking to buy a home instead of rent, turn to ServiceLink Auction. In our upcoming auctions, you can find various types of properties for sale, including short-sale, foreclosure, newly foreclosed, and bank-owned homes that tend to sell below market value, allowing you to enjoy the potential of a strong return on investment.