The Build-to-Rent Market Is Growing. Here’s What You Need to Know

The build-to-rent market is one of the fastest-growing segments in the U.S. housing market and is poised to continue its growth in 2024 and beyond. If you’re considering wading into the build-to-rent space, here’s what you need to know to maximize your investment.

What is build-to-rent? 

Just as the term implies, build-to-rent homes are new single-family homes built specifically as rentals and owned by investors, typically arranged in clusters or within the same neighborhood. Investors commonly build entire communities or work with new home developers to acquire multiple properties with the intention of renting out every home in the neighborhood. Like traditional single-family rental properties, build-to-rent provides another option for renters who prefer more space, newer construction and often more amenities.

How fast is the build-to-rent market growing?  

In a single year from 2021 to 2022, the share of build-to-rent, single-family homes increased from 5% to 8%, according to the National Association of Realtors®. There were over 700 build-to-rent properties in the planning or construction stage as of June 2023, according to RealPage Market Analytics, with approximately 116,000 units expected through 2026. In fact, CoStar recently reported that institutional investors such a Pretium and Blackstone plan to invest up to $3.5 billion in build-to-rent communities in the coming years. 

Where is build-to-rent growing the fastest? 

Top markets for build-to-rent include Phoenix, Dallas and Atlanta. The Midwest has also seen significant growth, more than doubling from 5% to 12% between 2021 and 2022, according to NAR

What’s driving build-to-rent growth?  

Rising interest rates and higher home prices in recent years have shut many potential homebuyers out of the market, and build-to-rent gives them an option to potentially save for a home while enjoying the benefits of living in one. Baby boomers are also gravitating toward build-to-rent because of the financial flexibility it provides.

What are the advantages of build-to-rent for real estate investors? 

Rental rates for build-to-rent homes are surpassing the rental rates of multifamily apartments, and they tend to have less frequent turnover, helping to create a more stable market (and investment). And because they’re now approved for loans by Freddie Mac and Fannie Mae, debt terms are more consistent, and it’s easier to maintain a long-term hold period.

Another advantage for investors is being able to have more say over your investment from the start. Whether it’s two or three assets purchased from a home builder or you’re building your own community, as a build-to-rent investor, you’re able to have more control of your investment and be able to centralize expenses like maintenance and landscaping, so you may enjoy a greater return.

What’s the advantage of build-to-rent over other rental options like multifamily for renters?  

For many renters, build-to-rent homes just feel more like home to them versus living in an apartment. And they typically come with more outdoor and storage space, including garages and extra rooms that can be used as offices. With the shift toward more remote work since the pandemic, having this extra space to work at home is a positive. And many build-to-rent communities are located near the same shopping and amenities as other rental options, so renters can enjoy the feel of living in a neighborhood and still have the conveniences they want nearby. In fact, many build-to-rent communities have attractive amenities like dog parks and playgrounds built into them.

Is the build-to-rent market likely to continue to grow? 

With home prices and interest rates showing no sign of shrinking (along with a continuing shortage of available housing), the outlook is bright for the build-to-rent sector. And build-to-rent is also providing significant returns for SFR operators, making it an appealing opportunity for many operators.

Maintain your properties with MCS 

Looking for a trusted services partner to help you maintain your build-to-rent properties? Contact us to learn how MCS can help you maximize your build-to-rent investments from inspections through tenant turns.