Build-to-rent (BTR) homes are a rapidly growing segment in real estate, specifically designed and constructed for rental use. These properties, including both multifamily townhouses and single-family houses, offering a strategic investment opportunity. Build-to-rent (BTR) homes offer tenants the best of both worlds: modern new homes with private yards and garages, combined with the ease and convenience of renting. As more renters seek purpose-built living spaces that provide the comfort of homeownership without the financial burden, BTR homes are becoming a popular solution. This article delves into why investors are increasingly attracted to build-to-rent opportunities amidst rising demand and affordability challenges.
What Is Build-to-Rent?
Build-to-rent (BTR) communities are residential properties built specifically for rental purposes rather than for sale. Typically consisting of townhomes, but also including single-family communities, BTR investments offer passive investors a way to diversify their portfolios by acquiring multiple assets at once.
BTR communities also benefit from longer tenant retention. The average “single-family” renter stays for 5.6 years, much longer than typical multifamily renters, translating to significantly lower turnover. With less turnover, BTR investments require less staff, reducing operational expenses and enhancing profitability for investors.
The Demand for Rental Housing Is Rising
Rental demand is on the rise, with an estimated 112,920 build-to-rent (BTR) homes starting nationwide in 2023—a staggering 102% increase since 2019, according to Fixr.com. Home affordability remains the primary driver, with 71% of experts citing it as the main factor behind the surge in BTR demand. Millennials are at the forefront of this trend, driving 55% of demand, followed closely by Gen Z at 48%, as both generations seek flexible, affordable housing options in a challenging real estate market.
Key Benefits of BTR for Investors
Build-to-rent (BTR) investments offer distinct advantages that make them increasingly attractive to investors looking for stability and growth.
-
Predictable Cash Flow:
BTR investments are designed for long-term rental use, which attracts tenants seeking stability, often leading to longer leases. This predictable, steady cash flow appeals to investors looking for residual income without the volatility of frequent tenant turnover.
-
Reduced Vacancy Rates:
The demand for rental housing continues to grow, especially as housing affordability remains a challenge. BTR communities benefit from this high demand, attracting tenants who prefer the ease and quality of purpose-built rental properties. This demand translates to lower vacancy rates, as tenants are more likely to commit to longer stays, providing consistent income and minimizing turnover costs.
-
Lower Maintenance Costs:
Since BTR properties are newly constructed with high-quality materials, they generally require fewer repairs and updates than older rental properties. Lower maintenance demands mean fewer unexpected costs, allowing investors to allocate capital more effectively and focus on portfolio growth rather than constant upkeep.
-
Scalability and Portfolio Growth:
BTR properties offer investors a streamlined way to scale, as entire communities or portfolios of homes can be purchased and managed as a cohesive investment. With multiple properties operating under similar conditions, investors can achieve consistent returns across their portfolios. This scalability provides opportunities for growth while diversifying the risk across various properties.
These benefits make BTR investments an appealing choice for investors seeking a resilient, growth-oriented asset class that aligns with long-term rental demand in a favorable market.
Market Conditions Fueling BTR Growth
Since 2022, high interest rates have posed a major challenge to the real estate sector, sharply reducing buying power and limiting affordability in both single-family and multifamily markets. Many investors have held off on new acquisitions, waiting for rates to drop, which has further contributed to this slowdown. As a result, homeownership has become increasingly out of reach for many Americans, driving up demand for multifamily living.
This trend has created a unique market opportunity: build-to-rent (BTR) communities. With potential homeowners turning to renting, BTR meets the rising demand for single-family living without the costs and maintenance of ownership. Since COVID-19, more than $50 billion in institutional capital has flowed into BTR investments, highlighting this demand among renters seeking a single-family lifestyle. BTR properties are especially popular among young families, remote working professionals, and retirees.
As a rapidly expanding segment within multifamily real estate, BTR communities provide investors with a profitable way to capitalize on the shifting market—offering stable returns driven by a clear, long-term demand.
Location Matters
Here are the Top 20 BTR Markets in the U.S according to a RentCafe analysis:
This BTR growth is attributed to high population growth and migration. As these areas expand, there is a much higher potential for long-term demand. Emerging submarkets are some of the most desirable locations for BTR investments, as they create the most impact on investment returns.
Key Takeaways for Investors
Build-to-rent (BTR) investments have proven to be more than just a passing trend—they’re a solid, lasting asset class. Driven by strong demand, long-term tenant stability, and impressive net operating income (NOI), BTR offers investors an ideal mix of reliability and scalability. The attraction is clear: BTR provides a resilient income stream in a market where home affordability remains challenging, making it a smart addition to any diversified portfolio.
At Viking Capital, we’ve traditionally focused on apartment communities, but the undeniable potential of BTR aligns perfectly with our mission to offer high-yield, stable investments. We’re excited to announce our newest BTR opportunity in the thriving Dallas metro area, situated in an emerging submarket just 25 minutes south. This location taps into the region’s robust rental demand and the growth of suburban markets, allowing investors to take part in one of real estate’s most promising sectors.
Are you ready to dive into BTR opportunities? Check out The Townhomes at Bluebonnet now:
