Build-to-Rent Homes Are the New American Dream
Charlie Williams of Bellwether Enterprise on why these assets offer fresh opportunities for investors and the best of both worlds for residents.
What has been bubbling for a decade is close to becoming a full industrywide shift: the expansion of single-family-built-to-rent rental communities. These communities are different from garden apartments and multifamily buildings. These are purpose-built communities of single-family homes that are owned, maintained and rented out by a single company.
For many, this asset class still conjures images of mom-and-pop owners with just a handful of properties. With more and more major players getting involved in the space, however, it’s time to take notice of what’s driving the high demand for this property type and how it will impact the entire industry.
BTR is growing beyond its Phoenix, Ariz., genesis because it is addressing problems that traditional rentals have never solved. Renters typically have complained about the lack of storage space, room to entertain, private parking, and a place to bring their pets. For the same price as renting a garden apartment, tenants in single-family BTR houses can enjoy many of the same conveniences of a mortgaged home but without the same financial commitment.
The influx of Americans now working remotely due to the pandemic is hastening the growth of BTR communities. People who no longer need to live in the city center, workers taking remote jobs in different regions, and those who can work while traveling all see the benefits of an affordable, value-packed home base.
Built for owners and residents
As tenants embrace the benefits of single-family BTR communities, both owners and residents are realizing sustained financial and logistical benefits from this growing rental model.
When people like where they live, they tend to stay. Single-family BTR rental communities often achieve high lease-up rates thanks to the combination of high demand and affordable pricing. From the perspective of an investor or management company, BTR communities are attractive because they provide high cash-flow with minimal turnover and vacancy costs. Plus, as the communities grow, they can be designed for increased cost and convenience. BTR communities can use standardized appliances and employ dedicated repair staff, which makes upkeep easier for residents and cheaper for management companies.
Institutional capital has taken notice of the BTR boom and is now supplying the market to accelerate the growth across the country. Billions of dollars in capital are entering the space through debt, equity and joint venture providers as they learn about the increasing potential for greater financial stability and higher net yields. Industry leaders are in the process of educating lenders in order to establish new language and guidelines surrounding BTR.
To borrow a term from Silicon Valley, the “disruption” in residential real estate caused by single-family BTR communities is driving housing innovation. With consumers having more housing options than ever, landlords and management companies will have to convince prospective tenants why they should live in a small apartment when the same amount of money would provide them a house with a driveway and a yard.
The homeowner experience
The residential real estate industry has been ripe for disruption for years, especially now as the rising cost of owning a home puts a mortgage out of reach for many. Even for high-income Americans, no longer needing to commute on a daily basis lowers the value of mortgaging a home near their job.
On top of diversifying the housing stock and removing the financial barrier or a mortgage, built-to-rent homes also remove the burden of costly maintenance. From windows broken in strong winds to carpets ruined by flood waters, homeowners are usually on the hook for repairs. In BTR communities, these types of inconvenient and costly repairs are handled by the management company. There is a real benefit for individuals and families to know that they can live in a house with the knowledge that maintenance and repairs won’t put them over budget. Beyond the money involved in maintenance, many do not want to spend time on these issues when they could be simply enjoying their homes.
American families have for generations idealized living in a house. While some might call this ideal “antiquated,” the explosive growth of single-family BTR communities is proof that, when given the option, many Americans prefer the same style of housing synonymous with the American Dream.
At the end of the day, single-family BTR communities are spreading across the country because of how well they capture the best parts of the classic homeownership experience. The knowledge that one has a parking spot waiting for them after work, the ability to grill with friends and family, the convenience of being able to store holiday decorations, and the joy of playing with a dog in one’s own backyard. These are things multifamily buildings, manufactured housing and garden apartments will always struggle to provide.
There’s a reason why single-family housing has had such enduring cultural relevance in this country. With single-family BTR communities spreading across the nation, more and more individuals and families will be able to access and afford their own American Dream.
Charlie Williams is the executive vice president at Bellwether Enterprise.