Build-To-Rent Properties Are On The Rise. What Do You Need To Know?

The build-to-rent housing market is not just on the rise, it’s skyrocketing. In 2023, there were more than 27,000 BTR homes built, up 75% from 2022 and more than 300% since 2019. 

Despite this meteoric rise, some people may still not know what, exactly, defines a BTR home. This quick overview will cover some of the basics of this booming asset class, including:

• What is build-to-rent housing?
• What is the difference between build-to-rent and single-family rentals?
• What is the difference between single-family rentals and multifamily properties?
• What makes build-to-rent appealing?
• What are the downsides of build-to-rent properties?

What is build-to-rent housing?

BTR housing is a concept born out of a rising problem: the growing unaffordability of single-family homes. BTRs are detached properties built on large developments that give renters the opportunity to have more space than an apartment without the burden of a mortgage. 

BTR communities compare to traditional gated residential neighborhoods since they often include amenities like swimming pools and tennis courts, but without the oversight of a homeowners association.

What is the difference between build-to-rent and single-family rentals?

BTR developments are considered to be a subsector of the SFR asset class. But what truly sets them apart is the word “development.” While many SFRs are owned by individual landlords and can be scattered throughout traditional residential neighborhoods, BTRs are owned by investors, professionally managed and built on one site with shared community amenities. Also, while SFRs were likely built with homeowners, not renters, in mind, BTR developments are specifically designed and built for long-term renters. 

What is the difference between build-to-rent and multifamily?

While the difference between BTR and SFR may seem small, the difference between these properties and multifamily units is significant. Unlike the apartments in a multifamily property, BTRs are usually single-family homes that are not attached to other units. This gives renters a level of space and privacy they can’t find in most multifamily buildings. 

What makes build-to-rent properties appealing?

BTR properties are very attractive for renters because they offer the opportunity to enjoy the benefits of a single-family home without the hassle of down payments, mortgages and fluctuating interest rates. 

For investors and developers, the pros of BTR developments range from the types of benefits investors experience with all rental properties — the ability to earn passive income while their investment appreciates — to unique ones including lower turnover rates since BTRs are designed with long-term renters in mind. They can also charge premium rents for these properties and explore the option to sell them to renters in the future. 

What are the downsides of build-to-rent properties?

For renters, the negatives of BTR properties mostly revolve around the fact that while it may feel as though they have their own single-family home, they are still renting and not recouping the financial benefits of homeownership. Additionally, these properties are often smaller than traditional single-family homes and are more expensive to rent than multifamily units.

For investors and developers, the cons of BTR developments include the high upfront costs of finding and purchasing the land and materials to build the homes as well as delayed returns as they wait through a long construction process. There is also high competition from institutional investors and regulatory challenges to consider, as some regions have been implementing regulations specifically to limit BTR developments. 

Check here for Bisnow’s latest news on the BTR market.