The Build-For-Rent Trend: Everything you Need to Know
The significant spike in build-for-rent demand has made the single-family residential rental product the fastest-growing trend in homebuilding today. According to the Pew Research Center, more U.S. households are occupied by renters than at any point since the 1960’s. In fact, a new survey from Apartment List found that 18% of millennials expect to rent forever, up from 11-12% in the prior two years. As explained by the Atlantic Business Journal, one of the main reasons people rent, especially millennials and Generation Z, is because they can’t afford to purchase a home in their desired area. Additionally, most major cities lack affordable multiunit housing solutions due to zoning and density restrictions in popular areas. In this article, we discuss the build-for-rent model, the reasons why BFR has emerged as one of the most popular trends in real estate, and how the COVID-19 pandemic has impacted the BFR space.
What is build-for-rent?
According to John Burns Real Estate Consulting, build-for-rent is a real estate model in which investors develop a BFR community from ground-up. They purchase a group of homes or lots within a neighborhood, develop the properties, rent them out, and have them professionally managed. Traditional single-family rentals usually start as owner-occupied and go through multiple buyers before being resold and rented out. One of the main reasons BFR is so popular is because it provides renters with a new-construction home. Often, build-for-rent projects are standalone detached structures, or could be built as a townhome layout with a shared wall or as a duplex. Single-family homes are always in high demand, and build-for-rent provides that single-family built environment without large down payment or mortgage required. Build-for-rent caters to a new kind of starter home market and features an entirely new institutional investment asset class.
Investors appreciate the booming build-for-rent trend, given its strong occupancy rates, significant rent premiums, and quick lease-ups. In fact, single-family rent growth has historically stayed positive over time, even during economic recessions. Furthermore, the demand for single-family rentals is growing across the nation. The Harvard Joint Center for Housing Studies’ Rental Housing 2020 report indicated the number of all single-family rentals, both previously existing homes and new build-for-rent units, grew 18% from 2008 to 2018 to 15.5 million units, or about a third of all rental units nationally.
The impact of Covid on the Build-for-Rent Space
Demand for the single-family residential rental product is rising and has emerged as a popular option today for those seeking an affordable and spacious living environment. The trend toward single-family, build-for-rent homes was a flourishing trend over the past couple of years and has only accelerated as an asset class during the COVID-19 pandemic.
As we all know, social distancing has become the new normal. Renters are continuing to move away from typical apartment complexes in highly populated and urban areas, and instead, are seeking out housing in suburban areas. Fortunately, single-family build-for-rent communities boast larger square footages compared to typical apartment units and are primarily developed in suburban areas, making the build-for-rent product a favored environment. According to Builder and Developer Magazine, over 65% of single-family rental homes contain three or more bedrooms as opposed to only 11% of apartments. For renters seeking more space to accommodate the potential for an expanded home office, single-family rental homes provide a great option.
In this article, we explored some of the main reasons why there are currently more renters occupying houses in the U.S. than at any point over the last 60 years, how the build-for-rent real estate model works, what BFR has to offer, and how the BFR space has been impacted by the COVID-19 pandemic. Now that you have a greater understanding of the build-for-rent space, and what’s driving the growth for single-family BFR properties, you can decide if this asset class fits your investment criteria.