.png)
If you haven’t heard the news already, there’s an unusual trend happening in American housing markets—brand new homes are selling for less than resale. No, it’s not Opposite Day and you haven’t stepped through the looking glass. A rare confluence of circumstances is affecting markets all at once and cheaper new-builds happen to be one side effect.
This moment presents an incredible opportunity for retail investors to add brand new homes to their rental property portfolios; something that was previously limited to institutional investors. Build-to-rent homes allow investors to capitalize on the mint condition finishes, builder warranties, and lower mortgage rates. Since this current window of opportunity is unlikely to stay open for long, investors will want to move quickly to secure the best value.
If you’re wondering “how do I get in on this opportunity?” and “what exactly does build-to-rent mean anyway?”, don’t worry, we’ve got you covered. Read on to learn about BTR investments and their numerous benefits, plus find out how you can simplify your own BTR acquisition using the Lennar Investor Marketplace.
What Are Build-to-Rent Homes? Why Are They Popular?
Build-to-rent homes are properties that are designed by home builders to be turnkey for rental property investors. Not so long ago BTRs were a pretty rare acquisition among rental property investors. The model was usually only feasible for institutional investors and developers with commercial apartment buildings or condos. Traditionally, brand new single-family houses are marketed to individual consumers who plan to move in themselves. Recent shifts in the housing market, however, have changed conventional thinking and given rise to the BTR model.
There are a few factors at play in current markets that have made BTR the new smart investment choice. One is that homeownership is increasingly difficult to obtain. This trend has been around for decades, but since the pandemic first-time buyers have had it especially rough. Massive spikes in home values between 2020-2022 followed by years of high interest rates have made it impossible for many would-be buyers to obtain a mortgage. The typical first-time home-buyer is now 38 years old. As the Millennial cohort drifts further into middle-age, they can’t exactly put having children on hold forever while they save to buy a house. BTR homes present families who aren’t in a position to buy with an attractive alternative that offers a lot of the same benefits—space, backyard, privacy—and these families make up an increasingly large share of renters. In fact, demand for single-family rentals has increased 102% since 2019.
Another factor is the glut of new inventory in certain markets; southern cities in particular. Population surges have spurred huge building sprees throughout the Sun Belt and caused an oversupply of new housing that developers are keen to offload. This has resulted in deep discounts and incentives to purchase new-builds. Meanwhile, the combination of cooling markets and high interest rates has made homeowners less motivated to sell. Most would rather hang onto their low-interest mortgages until a sellers’ market comes back around and they can get a better price.
It’s a perfect storm for BTR investment. The market for single-family rentals is especially large and brand new homes are competitively priced.
Advantages of Build-to-Rent Over Existing Homes
Build-to-rent homes offer a number of advantages compared to existing properties. Here are just some of the key benefits that you can expect from BTR investments:
Lower Maintenance and Operating Costs
Let’s start with one of the most obvious advantages of BTRs: new buildings are cheaper to run and require less maintenance.
We all know that older properties come with issues like wear-and-tear on interiors, outdated and inefficient appliances, health hazards like mold and asbestos, leaky roofs, drafty windows– the list goes on. Renovating an old building to rental standards is costly. Not only do you lose money paying for renovations, you lose rental income during the time it takes to complete them. Plus, staying on top of creaky floorboards and finicky old radiators even after you’ve renovated can sometimes feel like being trapped on a hamster wheel.
Buying an investment in turnkey condition, on the other hand, means that you only have to worry about the sale price and that your property is pretty much move-in ready from day one. New buildings also have brand new paint, carpets, appliances, windows, siding, HVACs, plumbing, and wiring, all of which should last years before needing to be repaired or replaced. In the event that anything does break in the near future, all of the warranties are brand new as well. In other words, having everything in mint condition will instantly slash your maintenance costs. Not only that, having new windows and insulation, as well as the latest and most energy-efficient appliances will reduce operating costs and cut down on your overhead when you have vacancies.
Higher Tenant Appeal and Reduced Vacancy
Let’s face it–renting can be tough. When a tenant signs a lease they’re taking a leap of faith. They ultimately just have to trust that the building they’re moving into will be a safe and comfortable place to live, and that the landlord will sort out any issues that may arise. Placing the livability of their home in someone else’s hands can be especially stressful for families.
To tenants looking for suitable homes to raise their children in, BTRs are a breath of fresh air. Knowing that everything is clean, new, and up to the latest safety standards is a massive weight off their shoulders. Not only will most tenants jump at the chance to sign a lease for a BTR, they will very likely want to hang onto their tenancy for years, thus reducing vacancy periods.
Ability to Command Premium Rents
That sigh of relief that tenants breathe when they move into a BTR property is something that most are willing to pay extra for. A nice, clean living space, modern layouts, and state-of-the-art appliances are worth a great deal to people who spend a lot of time in their homes, and they’re willing to make those comforts a priority in their budgets.
The large number of families who rent, as well as the rise of remote work, mean that the demographic of people who can and will pay a premium for elegant, functional rental homes is larger than ever before. Plus, BTR single-family dwellings have the added benefit of privacy compared to multi-unit buildings, and privacy always commands higher rates.
Predictable Income and Economic Resilience
Rental properties in general are solid investments because they generate near-term cash flow and appreciate in value over the long-term. The type of single-family BTRs that investors are currently snapping up at discounts are especially well-positioned to increase in value as the years go by. Why? New developments tend to be built on the outer edges of cities and further away from amenities. As communities build up over time, these developments that were once new start to be viewed as more convenient and established, thus increasing their value.
Plus, the demographics that BTRs attract tend to be some of the most reliable tenants. Families are famously willing to re-sign leases year after year in order to remain in the same school district and provide their children with overall stability. And higher-earning individuals who are willing to pay for premium, single-family living spaces tend to be relatively well-insulated against economic downturns and are less likely to stop paying rent due to job loss.
Portfolio Scalability and Management Efficiency
Investing in BTR homes that exist within the same planned communities can be extremely convenient in a few ways. For starters, if you purchase homes in planned communities through buyer incentives it can be an efficient way to scale your portfolio. Rather than acquiring discounted properties piece-by-piece in different areas over time, you can add multiple high-value assets in one go.
Another advantage is that planned communities are usually managed by a single company or HOA that is responsible for things like road maintenance, snow plowing, and managing shared amenities like gyms, pools, tennis courts, playgrounds, and green spaces. They may even have their own crews for certain home repairs. If all your properties are in the same community it simplifies your life with only one set of rules to follow and a small handful of numbers to save to your contacts.
Forced Appreciation and Instant Equity
Another potential advantage of BTRs is that investors who enter under contract before building is complete have the option to order value-add features. These add-ons can force appreciation and create instant equity when investors re-appraise once construction is finished. Investors who acquire properties ahead of completion through buyer incentives stand to do especially well utilizing this strategy.
Additional Considerations
One of the best things about BTRs is that in many ways they are blank canvases. The value-add features that you choose for BTR investments can be tailored to modern tastes and lifestyles and optimized to attract top-tier tenants. BTRs are themselves a reflection of the current moment both in terms of the real estate market and the world more broadly. As lifestyles and priorities shift, the needs and preferences of renters are more aligned than ever with the BTR model.
Add BTR to your Rental Portfolio with Evernest + Lennar
The build-to-rent phenomenon may be the latest investment craze, but it is far from a passing fad. The advantages of owning new-build properties, from lowered maintenance costs to increased tenant appeal to higher market value and appreciation, make BTR a powerful and increasingly preferable investment model. And with current market forces making BTR homes some of the most affordable out there, investing in them is simply a no-brainer.
There is truly no time like the present to seize on the incredible opportunities available to make BTR a core portfolio strategy. That is why Evernest has partnered with Lennar to give investors a head-start with BTR acquisitions. Now, when you make a purchase through Lennar, you’ll receive four free months of property management with Evernest.
Just search for BTR homes in the Lennar Investor Marketplace to get started.
