Travis Cadman’s Guide to: Built-to-Rent

Built-to-Rent housing is becoming an increasingly popular – and profitable – real estate investment strategy. Travis Cadman offers a solid, proven approach to conquering the Build-to-Rent market.

What is Built-to-Rent housing, anyway?

Built-to-Rent, is an investment model that has grown out of the single family home rental market. The traditional multifamily industry was unsure of the viability of institutionalizing single-family home rentals, however following the sub-prime crisis in 2008 institutional owners of single family rentals have proven that they can effectively leverage technology to make leasing, managing, and maintaining a portfolio of homes spread throughout a city cost-effective and profitable. Build-to-Rent takes this model and expands upon it by grouping the rentals into a purpose built community and allowing for the amenity add-ons traditionally seen in multifamily communities.

Recent surveys, of those planning to rent their next home, indicated that 45% prefer to move into a single-family detatched or attached rental property. These surveys indicated that SFR tenants strongly desire the privacy offered by a single-family home with a yard, and they really don’t want to have someone live above or below them. Built-to-rent communities satisfy this desire and offer both stability and exceptional ROI potential. There are many advantages to this market, here are a few.

1. Solid Rental Growth.

On stabilized occupancy levels of 96%, rental growth for single family rental communities in the past 12 months has averaged 4.5%, as compared to a 3.0% increase seen in the multifamily market. On a national level, single-family rental rates never experienced negative growth and have consistently proven less volatile than apartment rents and resale home prices.

2. Premium Rental Rates

While it varies significantly based on product and amenities, most B2R communities are able to achieve rental rates of up to a 30% premium over comparable sized individual single-family homes and apartment units.

3. Reduced Turnover.

Single family rentals show a turnover rate of approximately 30%-34% which is significantly lower than that of multifamily apartments (47%-51%). This lower turnover translates into lower make ready and vacancy costs for the product.

4. New Construction

New construction provides significant benefits in reducing ongoing repairs and maintenance while eliminating any immediate capital repair costs for upwards of the first 15 years. In addition, new construction allows for the use of new technology in the construction process, helping to further reduce ongoing future maintenance costs.

Travis Cadman is a 30-year real estate investment veteran and CEO of Investar USA.