Build-to-rent (BTR) is a hot topic in real estate today. Many adjacent industries, including property management, community association management, construction and lending, are starting to see related impacts as well.
AvidXchange recently hosted a webinar on build-to-rent trends, “The Build-to-Rent Revolution: Unlocking the Future of Housing.” Panelists included:
- Chelsa Fenner, Regional Vice President, Community Association Management Services (CAMS)
- John Azar, Founder and Managing Partner, Peak 15 Capital
- Chris Elmore, Chief Evangelist, AvidXchange
- Jon Land, Director of Channel Sales, Real Estate, AvidXchange
The group discussed the appeal of BTR in the current macroeconomic environment, its industry impact and its future trajectory.
What is Build-to-Rent?
BTR homes are single-family homes in a planned community built with the intention of renting. They typically have a single developer that works together with builders and real estate investors to establish a BTR community. These communities often offer lifestyle amenities attractive to renters, including landscaping services, pools and outdoor community spaces.
According to research by RentCafe, a record 14,500 BTR homes were built in 2022. As of May 2023, there are already 44,700 BTR homes under construction. RentCafe also found that BTR homes have a 97% occupancy level, compared to 95% for apartments.
Azar suggested that BTR properties work well for Gen Xers and Millennials who prefer to stay liquid, spending money on experiences rather than homeownership. Fenner agreed that BTR homes give renters freedom, allowing them to stay in one location for several years and then move on when it suits them.
Fenner believes the popularity of BTR properties emerged because of the COVID-19 pandemic. “During the pandemic, people wanted to get outside. People wanted to explore. They wanted to have their space. So, fitting for all of these single-family homes to be popping up,” she said.
Fenner also noted that BTR homes give families who couldn’t otherwise afford them access to premium amenities. “I’ve worked really hard, but I’m a single mom and I’ve never had the opportunity to purchase a home of this nature. And this would give someone like me that opportunity,” she said.
Build-to-Rent Benefits for Developers
The advantages of BTR homes for some renters are clear, but it may seem counterintuitive for developers to build single-family homes for rent instead of compact multi-family rentals they can stack on a smaller parcel of land.
BTR renters tend to stay at the property for a longer period than other renters – BTR renters have an impressive 74% renewal rate (compared to 57% for apartment renters). This helps the property owner cut costs and resources associated with turnover.
Additionally, BTR renters generally take more pride in their living space, which reduces maintenance and upkeep expenses for owners. “This matches with the story of people wanting to just stay and viewing it more as a home as opposed to just a temporary kind of path,” said Azar.
BTR homes can be sold off individually or in small parcels when they’ve appreciated and the developer is ready to exit the investment. That flexibility isn’t available with multi-family properties where all the units are usually sold together along with the building.
Some lenders are offering more favorable terms to encourage developers to build BTR homes. Azar said, “We’re seeing a lot more institutional capital being allocated into those projects … I know a couple of different lenders that have special lending programs that if you are to buy at least 20 single family [home properties] at one time, they’ll give you special financing.”
Build-to-Rent Community Management Challenges
As a relatively new phenomenon, it’s not yet clear how to manage build-to-rent communities most effectively. Fenner said her homeowners’ association (HOA) management company has picked up some BTR communities as clients. They oversee insurance and upkeep for common areas and amenities while another business deals directly with tenants and leasing issues.
However, Fenner said she wouldn’t be surprised if companies like hers start to take on leasing duties as the market advances. “What I’m thinking is going to happen is that as we evolve, we’re going to see community association managers getting into that gray area of management and almost becoming a leasing manager,” she shared.
Fenner added that financial automation technology could help simplify BTR management. “I mean, with all the units, what do you want to do? You want to streamline this stuff, right?” she said. “It’s going to make life easier for the tenants, the property managers, everybody in the mix. So, streamlining is key.”