Key Takeaways
- Built to Rent is an investment strategy focused on long-term rental income and can offer investors more stable, predictable income streams.
- Demand for BTR has surged in recent years due to housing supply constraints and renter preferences.
- Evaluating BTR opportunities requires the consideration of upfront construction and acquisition costs, as well as lease-up timelines and stabilized cash flow.
Built to rent investing has become a staple for real estate investors who want reliable long-term income. That’s because it can scale gradually with stable demand in the right markets.
Additionally, it can work with many types of properties, including single-family homes, townhouses, or clusters.
This guide discusses how BTR investing works, what investors should consider before pursuing this type of strategy, and how LendingOne’s platform is well positioned to support these types of investors.
What Is Build to Rent (BTR)?
Build to rent refers to developing communities designed for long-term rentals. This contrasts with traditional real estate investments, where homes are typically acquired individually.
Instead, BTR communities are initially designed with rental preferences in mind, enabling greater investment, marketing, and operational efficiencies.
BTR communities can include a variety of real estate types, including clusters, townhomes, and single-family properties.
A big selling point for investors is that build-to-rent can provide more predictable cash flow, greater tenant stability, and a more seamless property management model.
The Rise of Build to Rent
Interest and demand for Build to Rent began increasing in response to pressure on housing supply and affordability.
With insufficient supply of new housing units and elevated interest rates, continuing to rent was a reality that most aspiring homeowners found more attractive, since it also came without the long-term commitments of homeownership.
For these reasons, developers began exploring ways to meet the demand for more rental units. Many have focused on the top build to rent markets for maximum return on investment. For investors, BTR models often yield income stability, predictable cash flow, and a greater ability to secure premium rents compared to those not centrally located or clustered.
Who Is Driving Build to Rent Demand?
BTR demand is driven by renters and investors. Demographics of renters often involve those in the workforce who want to be centrally located to amenities, without sacrificing the privacy and space of a single-family home or townhome.
Families who are not financially able to afford homeownership have also had an increasing demand for higher square footage units and outdoor amenities.
These are just a couple of the drivers of BTR demand. More of which are detailed in LendingOne’s analysis of the three trends driving renter demand for BTR.
On the investor side, more resources are being directed to BTR platforms due to the potential for higher ROIs and greater cash flow stability. It’s a strategy discussed in our insight on BTR’s growing appeal to multifamily investors, as it complements other long-term investment strategies.
Where Is Build to Rent Demand the Highest?
Areas experiencing large population growth are often where BTR demand surges. These areas tend to correlate with a spike in job creation, making them more attractive to professionals and families.
In recent years, Florida, Texas, and Georgia have been among the states that have experienced high BTR demand, which aligns with single-family rental market trends investors should watch.
Investors looking for financing partners may find that many cannot offer financing in certain areas. However, LendingOne financing is available in every state except Alaska, Nevada, North Dakota, and South Dakota, and its experienced team has a track record of successfully funding projects in these and other high-growth markets.
How Build to Rent Works
With BTR, investors generally aim to build multiple homes within a single community. By doing so, homes can be catered towards operational efficiencies in renting.
Development typically involves construction carried out in multiple phases. This allows leasing to begin without requiring the entire community to be completed. Floor plans and home designs are often standardized to simplify and minimize construction costs.
With BTR, a single entity usually takes ownership of the community. Management is then often contracted out to a professional property management company to handle administrative tasks, maintenance, and other services.
A key difference between Build to Rent and Build to Sell is when profits are realized. Build to sell projects focus on short-term revenue potential, whereas BTR prioritizes long-term returns such as rental income, tenant retention, and asset performance.
Advantages for Developers and Investors
For developers and investors seeking reliable long-term returns, BTR offers a distinct advantage, as it is designed for long-term performance from the very beginning.
With rental operations in mind, communities often have a strong appeal to renters, resulting in reliable demand and long-term cash flow.
Reliable demand is typically driven by the fact that homes have features aligned with renter preferences. Common examples include neighborhood amenities and areas that offer space and privacy. This leads to fewer vacancies, longer-term leases, and greater retention rates.
Another advantage of having a consistent stream of income is that it makes future portfolio planning and forecasting far simpler. There are fewer variables to account for, and it tends to be more predictable than sales proceeds from one-time transactions on a specific piece of real estate.
How to Evaluate Build to Rent Investments
In evaluating BTR investment opportunities, long-term performance should be a priority. The best BTR investments can remain resilient across multiple market cycles by targeting areas with job and population growth, as well as other amenities that renters find appealing.
The old saying in real estate that location is everything remains true today. For instance, areas with large employment bases tend to attract more people, thereby increasing housing demand. This, in turn, can correlate with BTR communities with low vacancies and stable rent growth.
Assess rental demand for property types, such as whether single-family properties or townhomes are more in demand, as well as the price points that each can support.
Construction costs, while often just a one-time expense, are significant enough to be considered. Factor in land, labor, and material costs.
Lastly, conduct an analysis and underwrite for stabilization, not just to the completion of the community. Ask how long it would take to realistically see revenue from leasing out units, as well as ongoing debt, maintenance, and operating expenses.
This provides a view of the full lifecycle of a project, helping you better understand whether it can meet your long-term investment goals.
Financing Solutions for Build to Rent Investors
The right financing is critical to successfully completing a BTR project. Partnering with the right lending company can mean the difference between funding acquisitions and losing out on the project to a competing investor. In a worst-case scenario, it could also lead to an inability to fund the project to completion.
The LendingOne Institutional Group offers financing catered to BTR investors. Loan programs can support investors during the initial construction stages in a phased development model, offer interest-only periods to minimize cash flow strain, and set eligibility criteria that focus on the income-producing potential of the properties.
For investors planning to hold for the long term, this structured approach preserves liquidity during development and maintains stability after project completion.
For more details on financing options and to see how LendingOne’s programs can help you achieve your goals, visit our Build to Rent page.
Building Long-Term Value Through Build to Rent with LendingOne
BTR has emerged as a widely adopted investment model for those who want stable, long-term cash flow with the ability to scale. Communities explicitly built for renting not only better align with renter preferences, but also give investors greater control over strategy and operational decisions.
Successfully executing a BTR strategy requires more than just access to capital. The right financing partner can eliminate roadblocks by providing timely funding, understanding development timelines, and navigating the nuances of long-term holding objectives.
LendingOne works only with real estate investors and has a highly well-versed team in construction, rental, and portfolio financing.
If you’re considering a BTR investment opportunity, speak with a member of the LendingOne Institutional Group to discuss which financing solutions would be best suited for your goals.
Frequently Asked Questions
What does Built to Rent mean for real estate investors?
Built to rent is a residential community built explicitly for rental use. That’s in contrast to other investment models, which focus on individual home sales. BTR places greater emphasis on long-term recurring income rather than on a one-time transaction from a home sale.
How is Build to Rent different from single-family or multifamily investing?
BTR communities are built from the ground up with rental use in mind. For that reason, they can be operated much more efficiently and take full advantage of economies of scale to maximize returns to investors. Additionally, they tend to have lower vacancy rates, as BTR communities often feature amenities designed to meet renter demand.
What are the main benefits of investing in Built to Rent properties?
BTR properties typically have more predictable and stable long-term revenue. This is generally a result of high demand, as properties cater to renters’ preferences, making it less likely that units will sit vacant.
Which U.S. markets currently show the strongest Built to Rent demand?
Florida, Texas, and Georgia are three states seeing consistent rises in BTR demand. This can largely be attributed to factors such as increased population growth, job creation, and insufficient housing supply to accommodate an influx of professionals and families.
