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Build-to-Rent Boom: Why Are Investors Pouring In?

Updated: 6 days ago

Investors are constructing single-family rental properties at an unprecedented pace to cater to a growing number of renters who want more space without the commitment of buying a home or the burden of high mortgage payments. In 2023, a record 27,500 build-to-rent homes were completed, nearly three times the number from two years earlier, based on Yardi Matrix data analyzed by RentCafe.


The supply of starter homes is limited. In many regions, entry-level homes priced below the median home price are scarce. Even when available, these smaller, simpler homes may not be affordable for the average family due to persistently high home prices and mortgage rates.


First-time homebuyers are finding creative solutions to the affordability crisis, such as co-buying homes with friends and living with parents to save for a down payment. Some are also opting for smaller homes or shared walls, fueling a boom in townhome construction and using house hacking to offset mortgage costs.


However, many millennials still prioritize finding a single-family home with ample bedrooms and a backyard in a good school district, even if it means renting. Remote workers who enjoy the amenities of a single-family home are also choosing to rent for the flexibility it provides. This demand has attracted institutional investors and led to a surge in the construction of rental homes.


More Rental Homes on the Horizon

The number of build-to-rent completions has surged since 2020, when about 7,700 single-family rental homes were completed. This trend is set to continue, with over 45,400 rental properties currently under construction, most of which will be available by 2025. However, RentCafe anticipates a slowdown in new rental property construction in the coming years.


Sometimes, investors build single-family rental homes within mixed communities of renters and owners. There is also an increasing trend of constructing single-family rental communities, which feature a mix of single-family homes and multifamily units managed by a common property manager and offering shared amenities like outdoor spaces and fitness centers.


Build-to-rent housing appeals to renters who want more space and the latest home features. About 41% of the country’s build-to-rent houses were built in the last five years. These neighborhoods offer the allure of new construction at a lower cost than buying, while providing renters the flexibility to move without the hassle of selling.


Investors and developers have taken note of the growing demand for these communities. Institutional investment in build-to-rent properties is set to grow, according to a report from Cushman and Wakefield. For instance, Blackstone has invested over $9.5 billion in single-family rental properties in recent years.


Leading Metro Areas for Build-to-Rent Activity

In 14 of the top 20 major metro areas for build-to-rent housing, the number of completed units reached a decade high.


Phoenix emerged as a hotspot in 2023, with over 4,000 units completed, a 164% increase from the previous year. The city’s population growth and available land for expansion contribute to this trend, while high-demand coastal cities face development constraints.


Dallas saw nearly 2,700 rental homes completed in 2023, with Atlanta following at almost 2,000. These cities, along with Phoenix, have seen the highest numbers of build-to-rent completions in the last five years, with significant growth since 2018.


The top five states for build-to-rent completions in 2023 were:


Texas: 4,800 units

Arizona: 4,000 units

Florida: 2,800 units

Georgia: 2,181 units

South Carolina: 1,909 units

In Texas, build-to-rent housing is especially popular, with cities like Dallas, Houston, and Austin seeing ongoing growth. Florida also has booming build-to-rent construction across several metros.


Investing in Build-to-Rent Housing

The current demand for single-family rental homes with modern amenities makes build-to-rent housing a lucrative investment opportunity, offering stable cash flow. Here are a few ways to get involved:


Build a Single-Family Rental: Purchase land in a growing area and build a rental home. This can be easier than finding a turnkey rental home but comes with challenges like stricter new construction loan approval and higher costs.

Develop a Rental Community: With substantial capital and development experience, you could develop a build-to-rent community either independently or with partners.

Join a Private Equity Fund: Some private equity funds focus on build-to-rent investments, though they often require high minimum investments and are limited to accredited investors.

Real Estate Crowdfunding: Platforms like CrowdStreet and ArborCrowd allow investment in fractional shares of build-to-rent projects. Some, like Fundrise, offer entry with as little as $10.

Invest in REITs: Some private and publicly traded REITs focus on build-to-rent investments, with varying minimum investments.

The Bottom Line

Build-to-rent completions hit a record high in 2023 as developers and investors respond to the strong demand for single-family rentals from millennials and those seeking a flexible lifestyle. This trend is most prominent in Texas, Arizona, and Florida, but many metro areas have seen significant growth. Investors have various opportunities to benefit from this sector, with both active and passive investment options available.

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