INSIGHT

Build-To-Rent: Threat or Opportunity?

May 24, 2022
House for rent label. Wooden house symbol with rent tag on blue background. Real estate

As average home prices throughout the United States continue to rise, a new trend is gaining momentum in the real estate market: build-to-rent (BTR). Rents are rising, too, showing a 10.9% growth year-over-year. Investors today are seeing huge financial opportunities to build communities of single-family home exclusively with the end goal of renting.

This concept is a departure from the traditional model employed by most homebuilders: build beautiful homes with the idea of releasing product on a controlled schedule to maximize profit and eventually sell out of inventory.

The BTR model means rentals of single-family homes are now competing more strongly against new home sales, which could pose a threat to homebuilders—especially private regional builders without deep pockets and a wide national reach.

But this new business model may not be as threatening as it seems. Read on to discover emerging advantages for homebuilders in the build-to-rent space.

What’s driving the trend

Knowing what renters are looking for helps homebuilders focus their real estate sales and marketing strategies along with their design choices.Renters today are looking for two things that multi-family complexes struggle to deliver: more space and more privacy. The pandemic has forever changed how we live and work and many people are now acutely aware of space limitations and their close proximity to their neighbors. With multi-generational living also on the rise, renters want bigger homes that can accommodate more people comfortably.

Many renters want the spaciousness and privacy of a single-family home without the major financial outlay of a down payment. The BTR model works well, providing these residents the ability to move into a new home with the accompanying amenities and sense of community.

Opportunities for homebuilders

Though many homebuilders are not ready to develop entire communities around build-to-rent, there are many advantages available under this new structure.

• Try a hybrid model. Setaside a small portion (around 10%) of your inventory to release as rentals. This enables you to get in on the BTR action without making a full commitment to rental communities. 

• Introduce rent-to-own opportunities. Blend the BTR model with traditional real estate sales by dedicating a portion of your inventory as “rent-to-own.” This enables cash-strapped buyers to get their foot in the door of homeownership without having to first save up for an expective down payment.

• Support your area’s affordable housing efforts. Affordable housing is a hot topic throughout California and Nevada as sales and rental costs continue to rise. Building single-family rental homes in welcoming communities provides an alternative to the high-density housing many of today’s renters are looking to leave behind.   

• Take advantage of financial incentives. Depending on your business structure, you may be able to receive federal, state, or local tax credits that apply to affordable housing. These credits can offset your initial investment and bolster your cash flow as you await rental income. Rental inventory also allows homebuilders to ride both the appreciation and depreciation sides of home values, gaining a tax advantage for each.

Update your sales strategies

If you do decide to step into the BTR market, you’ll need to adjust your communications to reflect this new side of your business. This doesn’t mean scrapping your traditional real estate sales and marketing efforts—instead, look at how you can tailor your marketing messaging to appeal to a slightly different demographic.

Here are some messaging strategies to consider when appealing to renters:

  • Highlighting your community’s amenities
  • Directly comparing the benefits of a single-family home against apartment living
  • Emphasizing easy, fast move-in
  • Pointing out the lack of a hefty down payment

BTR is here to stay

As investors sink billions into build-to-rent communities, all signs point to the fact that this business strategy is not going anywhere any time soon. It’s impossible to tell how much of the new home sales market the BTR business model will affect at such an early stage, but it is a good idea keep close watch as it unfolds.

As seasoned real estate sales and marketing experts, the team at The Advantage Group is

always uncovering critical market intelligence to help builders anticipate change and respond proactively. By opening up to new build-to-rent opportunities early on, homebuilders can track alongside major market shifts, evolving their business models to keep up with the times.

Let our real estate sales and marketing experts help you move new home inventory faster. Contact The Advantage Group today.

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