The concept of build-to-rent (BTR) homes has gained significant traction over the past few years, transforming the residential property market. As the name suggests, BTR homes are specifically designed and built for renting out, rather than selling, to tenants.
While rental properties have always been a key part of the US housing market, the demand for BTR homes is growing at an unprecedented rate. The question is, why is this happening?
In this section, we delve into the reasons behind the growing demand for build-to-rent homes and the potential implications for the property market.
How BTR Properties Are Changing the Market
In the past, rental housing mainly focused on urban areas and multifamily developments, while single-family rentals were for older individuals in suburban areas. Before the COVID-19 pandemic, single-family build-to-rent investors would purchase multiple homes within the same subdivision where most residents owned their properties.
However, in 2020, lifestyle preferences started to change as people of all ages move away from crowded cities and remote work became more common. The single-family build-to-rent market is expanding, with developers constructing entire 'horizontal' communities of rental homes, offering shared amenities and on-site management.
These communities offer lower maintenance costs, tailored designs, and higher reliability. Larger three and four-bedroom homes are especially attractive to mature renters with families. Tenants tend to stay in single-family rentals longer, leading to lower transaction costs compared to buying individual homes.
Changing Demographics and Preferences
One of the main drivers behind the rising demand for BTR homes is the shift in demographics and preferences among the population. Millennials and Generation Z, who now constitute a significant portion of the workforce, are known for their preference for flexibility and mobility.
This generation is less likely to settle down in one place for an extended period, making renting a more appealing option than homeownership. As these individuals age and begin forming families, they often desire a place they can truly call their own, typically looking towards suburban areas or more affordable secondary markets.
Unfortunately, the burden of student loans combined with steep housing costs can make homeownership unattainable for some. As a result, renting single-family homes has become an appealing alternative to purchasing a house.
Furthermore, there is a growing preference amongst the population for modern, purpose-built rental homes that cater to a wide range of needs and amenities. Tenants are increasingly seeking properties that offer convenience, security, and a sense of community, factors that are often lacking in traditional rental properties.
BTR developments are designed to cater to these demands, offering high-quality, well-managed homes with communal spaces and facilities such as gyms, coworking spaces, and concierge services.
The Appeal to Institutional Investors
Another factor driving the growth of BTR homes is the interest from institutional investors looking for stable, long-term investments. BTR properties are particularly attractive to investors, such as pension funds and insurance companies, as they typically generate a steady income stream through rental payments.
Additionally, BTR homes tend to have lower tenant turnover rates, as renters often prefer the convenience and quality of purpose-built rental properties. Moreover, the growing demand for rental properties has led to a rise in rental prices, further increasing the appeal of BTR homes to investors.
As property prices continue to soar and the supply of affordable homes remains limited, the rental market is expected to continue to expand, providing further opportunities for investors in BTR properties.
Greater Financial Support
The growth of the BTR sector has also been supported by government policies and initiatives aimed at boosting the supply of rental homes. Investing in real estate in the U.S. is advantageous because financing for single-family rental properties is accessible to both large and small investors.
This has led to an increase in loans for build-to-rent housing, resulting in the creation of more rental communities to cater to the rising demand for single-family homes for rent. Affordable financing and the multi-generational need for rental housing can potentially lead to impressive returns on investment for build-to-rent single-family homes.
A 2020 Forbes article highlights that build-to-rent homes can yield higher returns compared to apartments. In many markets, larger houses often have higher rents than smaller apartments with the same number of bedrooms.
Environmental and Technological Advancements
Lastly, the growing demand for BTR homes can be attributed to the increasing awareness of environmental concerns and the desire for energy-efficient and sustainable housing.
BTR developments are typically designed and constructed using modern techniques and materials, resulting in properties that are more energy-efficient and environmentally friendly than traditional rental homes. In addition, the integration of smart technology in BTR homes provides tenants with a more convenient and connected living experience, further enhancing their appeal.
The demand for build-to-rent homes is set to continue growing, driven by changing demographics, tenant preferences, investor interest, government support, and technological advancements.
As the market continues to evolve, we will likely see further innovations and developments in the BTR sector, offering new opportunities for tenants, investors, and developers alike. It will be crucial for stakeholders to stay informed and adapt to the changing landscape to capitalize on the potential of this growing market.
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