Investing in Build-to-Rent: What to Know

Owning a home has always been part of the American Dream. But with rising home prices putting off potential buyers, that dream might have to be put on hold, at least for now. This is where build-to-rent single-family rentals (BTR SFR) come into play, offering renters all of the benefits of a detached home without any of the hassles of homeownership.

Single family BTR rentals offer the space, privacy, and community vibe that condominium or apartment living can’t match. This increasing demand for spacious, cozy homes is just one of the reasons behind the recent surge in BTR single family home construction. In 2023 alone, 27,500 build-to-rent single-family units were constructed in the United States, up from 15,691 the previous year.

For many investors today, BTR represents an ideal investment in a number of ways, offering them the chance to purchase new rental homes, at scale, typically in in-demand areas. These homes generally require less maintenance and repairs and can be a good opportunity for investors who would like to invest in rentals that are popular with the renting crowd. 

In this article, we’ll explore a few things that make BTR a popular investment, and see what you should look for when scouting out BTR investment opportunities.

7 Trends Influencing the Single-Family Build-to-Rent Sector

First up, there are a number of trends that are shaping the SFR BTR space. Let’s take a look at some of the factors that are contributing to demand for BTR properties:

1. Millennials and Gen Z Housing Trends

As the largest demographic cohort, Millennials are driving the demand for rental homes. Many are entering their prime earning years but prefer renting over buying due to lifestyle choices and financial flexibility. They seek spacious homes with modern amenities, which BTR SFR properties can provide. Gen Z is also beginning to dip their toes into the housing market, and they also show a preference for renting.

Brian Quigley of Beacon Lending told Yahoo News that while interest rates and home prices play a part in the decision to own a home, they’re just pieces of a larger puzzle. “The cultural emphasis on home ownership as a rite of passage has waned, particularly among younger generations who value flexibility and mobility. The ever-evolving job market, with a shift towards remote work, has reduced the need for a fixed residential location,” Quigley said.

2. Aging Population Moving to Smaller Homes

Older adults and retirees are also contributing to the demand for BTR homes. Many are looking to downsize from larger homes to smaller, more manageable rental properties that still offer a sense of community and access to amenities, which BTR SFR offers.

3. Economic Factors

One survey reports that the median rent in America is $1,850, about 30% cheaper than the median cost to buy, which is $2,700 per month. Economic uncertainty, high home prices, rising consumer goods prices, and student debt make it difficult for many to afford homeownership. Renting becomes a more viable and less risky option.

4. Presence of Institutional Investors 

The stability and predictability of this asset class make it an attractive investment, so much so that institutional investors have been pouring significant capital into the BTR SFR sector. This can be a sign of confidence in the long-term viability of this investment.

5. Technology Integration

Modern BTR properties are using technology to enhance the rental experience. Smart home features, online maintenance requests, and digital lease signing are becoming standard, catering to tech-savvy renters looking for convenience and efficiency. It also makes property management more efficient as well.

6. Eco-friendly Homes

One survey reveals that two-thirds of renters want green, energy-efficient homes. Practices like using eco-friendly building materials, smart technology for lighting and climate control, low-flow plumbing fixtures, and solar panels not only reduce energy bills but also provide a competitive advantage over non-green rental properties. 

7. Geographic Hotspots Are Seeing BTR Growth

Sunbelt states like Texas, Florida, Arizona, and Georgia are seeing a boom in BTR developments. The warm climate, economic growth, and relatively affordable cost of living attract renters and investors to these regions.

The southeastern and southwestern U.S. regions offer a combination of economic growth, job opportunities, and affordable real estate. Cities like Nashville, Charlotte, and Raleigh are seeing a rise in BTR properties.

Secondary and tertiary cities are also becoming attractive for BTR investments. Places like Boise, Idaho, and Huntsville, Alabama, offer lower entry costs and are experiencing population growth, driving demand for rental homes, including BTR properties. As always make sure you conduct careful research on the local property market before investing in BTR. 

Visit the Renters Warehouse Market Research Center to study the local rental market of your target neighborhood. 

Why Invest in Build-to-Rent Homes?

There are a number of reasons why investors are flocking to BTR, here’s a look at some of the benefits now:

1. Consistent Rental Income

First and foremost, BTR properties offer investors consistent rental income. Due to the fact that these properties are often built in strong housing markets, this type of rental has the potential for steady demand and high occupancy rates. 

2. They’re Built for Tenants

BTR properties are designed specifically for today’s renter. They have modern amenities, ample space, and often feature high-quality construction materials. Unlike multi-family homes, single-family homes often have the added bonus of outdoor spaces like backyards, gardens, or porches. All of these features can boost a property’s desirability. Better amenities are also part of the equation with many of these properties. 

BTR single family rental properties are built with renters in mind. They’re designed to meet modern renters’ needs and wants. These rentals, for example, may incorporate flexible living spaces that can easily adapt to different tenant needs, like multifunctional rooms or open floor plans. Eco-friendly, energy-saving features and smart home technology are also popular features as well. 

BTR single-family homes are often situated in desirable neighborhoods, with access to good schools, shopping and dining, and employment centers. This makes them attractive to different renter profiles, from young professionals to growing families. See: Is BTR a Good Option for Renters?

3. Renters Appreciate New Properties

Many renters appreciate living in a new home. A BTR SFR property allows them to live in residential housing, with more space than an apartment, but without the commitment of homeownership. This is an attractive option for many renters, who appreciate the convenience and comfort that these properties offer.

4. Long-Term Appreciation and Diversification

Over time, real estate in many markets tends to benefit from appreciation. Investors can enjoy property appreciation returns on top of rental income, especially if the property is in a desirable location, one that’s experiencing economic growth.

Rental properties will typically provide income as well as tax benefits, even during a recession. And residential rental properties also tend to be more resilient during economic downturns. There will always be people looking to rent, even during tough economic times. Adding BTR properties to an investment portfolio can help provide diversification and reduce overall risk. 

5. Lower Maintenance Costs

BTR single-family rental properties are typically new construction, with modern amenities, energy-efficient features. They also typically have much lower maintenance costs compared to older homes. Additionally, since they’re new, some of these homes also include warranties on many of the appliances and features, giving landlords one less thing to worry about.

6. The Chance to Scale 

BTR properties allow investors to scale their portfolio much more quickly, compared to buying up SFR properties one at a time. With BTR properties, an investor can buy up multiple properties in one location. This makes property management easier as well.

7. Professional Management

BTR developments often include professional property management services, saving investors time. This makes it easy to invest in properties at-scale, since investors won’t have to worry about overseeing them or handling the day-to-day issues that arise. A property manager will be able to handle everything from tenant sourcing and screening to lease enforcement, and even evictions if necessary.

Important Considerations When Investing in BTR

Of course, not all BTR investments are created equal. You’ll want to ensure that you conduct your due diligence and find a BTR development that’s in a good market, and at the right price. Here are a few important considerations you’ll want to keep in mind when investing in BTR SFR: 

1. Assess Local Market Conditions

Not all regions have the same demand for BTR properties. On the other hand, in neighborhoods where BTR properties have become highly popular, market saturation can occur, which can potentially keep rental prices down. Investors need to conduct thorough market research to identify locations with strong demand and growth potential.

Doing a real estate market analysis helps you invest with confidence. Get your FREE guide on How to Perform a Real Estate Market Analysis.

2. Consider the Costs

One of the biggest challenges of investing in BTR properties is the high initial investment cost. The cost of BTR varies significantly based on location. Prime urban areas tend to be more expensive than suburban or rural locations. Of course, more expensive areas typically mean that you’ll be able to command a higher rent, but you’ll want to run the numbers first to make sure the cost will be more than offset with the potential returns. In addition to the market, development of the property will incur costs as well that will impact how much you pay. For example, quality construction tailored to renter preferences (modern finishes, energy efficiency, etc.) can increase initial costs but could result in higher rental rates.

3. Navigate Management Complexities

Effective management of BTR properties requires skilled property managers who can handle leasing, tenant relations, and legal compliance. Keeping properties in good condition also requires ongoing maintenance and timely repairs. Not staying on top of tenant issues and maintenance concerns can lead to bigger problems and higher costs down the line, negatively affecting the tenant experience and your bottom line.

Read: The Ultimate Guide to Finding a Good Property Manager, for some top tips on how to find a good property manager.

Many BTR properties are proving to be a sound investment, offering investors a chance to invest in SFR, at scale, without the need to invest in aging housing stock, which typically requires more maintenance and repairs. Since these properties are new, built specifically for tenants, and typically located in in-demand housing markets, they appeal to many renters as well. If you’re interested in BTR and wondering whether it’s an investment that makes sense for you, be sure to check out: Why Build-to-Rent Might Be the Best Choice for You. Remember to always conduct your due diligence when looking for an investment property, and run the numbers to make sure your projected returns are in-line with your strategic investment goals.