The build-to-rent (BTR) model is an exciting model of real estate investment that we ourselves have adopted as part of our REI Nation repertoire. The build-to-rent model is exactly what it sounds like: new construction designed not for resale, but for renting.
At the outset, this might seem like an odd choice. After all, one of the staples of real estate investing has been the process of buying and rehabbing distressed properties. So why start from scratch?
Here are some surprising advantages to this model you may not be aware of!
5 Surprising Benefits of BTR Investing
#1. Alleviating Inventory Issues
Real estate inventory has been short since the early 2010s, as the Great Recession quickly diminished new construction activity. Even after the recession, inventory never really caught up to demand and – as we’ve seen throughout the COVID-19 pandemic – there were drastic consequences. Part of the beauty of the BTR model is that it doesn’t increase competition within the existing inventory. Investors aren’t competing over properties or “taking” them from homebuyers. Instead, they’re adding to overall inventory and alleviating some of the inventory pressure that has been present for over a decade.
#2. Zero In on Location
Though investors are advised that location is the most critical factor in the success of an investment property, they don’t always have the number of options they’d like. Sometimes properties just don’t pop up in the right areas. The BTR model allows investors to zero in on hand-picked, pre-vetted areas where there are desirable up-and-coming communities.
Additionally, investors can target markets with abundant land availability – often in the South and in more suburban areas. This allows investors to capitalize on lower land values posed for appreciation in developing areas.
#3. Built to Last
BTRs, from the ground up, are designed to withstand the wear-and-tear common in rental properties. Every element of construction can be chosen and designed for durability, lowering maintenance costs, and attracting residents. While it may seem expensive on the front end to build a property from scratch, you can take advantage of builder warranties on new construction plus the security of knowing things are done right from the very beginning.
Older properties can have hidden and expensive issues that can blow your renovation budget – and your profit margins!
#4. Skip the Property Search
In a highly competitive real estate market where new inventory is limited and properties are on the market for an average of 38 days, not only is finding a suitable investment property difficult but acquiring it is even harder. Part of the beauty of the BTR method is that you avoid the search and the bidding war.
Additionally, properties are designed with investor-owners and rental households in mind. Investors often must play the waiting game until the right property comes along to fit their investment goals and portfolio needs. BTRs cut down on this process by providing exactly what buy-and-hold investors are looking for.
#5. Longer-Term Residents
It comes as no surprise that new construction is particularly attractive to rental residents. There’s something infinitely attractive about living in a property before anyone else – a luxury not usually afforded to renters. Not only do renter families enjoy the newness of a BTR property, but BTRs are rarely constructed in a vacuum. They’re often communities or groups of new construction that come with amenities and community assets that incentivize residents to stick around.
Because you can better target the neighborhood, school districts, amenities, and community access, resident retention is higher. It’s already higher among single-family properties versus multi-family, too. You can expect residents to stick around, on average, much longer than the one or two years expected of apartments.
There are plenty of other advantages to the BTR model, too. Investors can charge a premium price for premium properties and residents know that they’re getting the best property possible for their money.
If you partner with the right people, you may find that BTRs can be more cost-efficient than targeting existing housing inventory.
While emerging models and strategies can (and should) make us pause, there are exciting opportunities in build-to-rent: which, unlike other emerging investment classes, capitalizes on existing, proven investment strategies.
Looking to start earning passive income? Connect with one of our Portfolio Advisors today!
