Buying Land for Build-To-Rent
Published date: November 17, 2019
Last updated date: November 17, 2019
One of the largest trends in the current land market is building to rent. In fact, this industry is booming in the United States, Canada, and around the western world. With single-family home-ownership numbers plummeting, single-family homes for rent are becoming more in demand than ever before.
Many investors and homebuilders, noticing the uptick in single-family rentals over the last decade, have invested heavily in the market. But, what is build-to-rent, why is this market booming, and is it actually helping ‘generation rent’?
What is build-to-rent?
Build-to-rent (abbreviated as B2R) is a term that describes ready-made single-family homes that a person can rent, instead of buy. Essentially, an investor or builder purchases land and then builds single-family homes on it. Those homes are rented out just like apartments.
Renting single-family homes is already a factor in development projects. But, typically, only a small percentage of homes in developments are available for rent. The rest were solely there for purchase. What is different with B2R real estate is that the entire subdivision or community is rentable.
The boom in the build-to-rent market in the US
Toll Brothers, Lennar, and Clayton Homes are all large US builders that have joined the B2R market. Investors and builders tend to target young, Millennials who may not have the capital or desire to purchase a home. As job opportunities become increasingly widespread and home appreciation has slowed, many of the younger generations look to renting as the only solution.
CNBC recently reported that in 2017, 37,000 homes in the US were built as rentals. That grew to 43,000 last year, or just under 5% of total single-family housing starts. But that is just homes built and held by builders for rent and doesn’t include those sold directly to investors, so the numbers are likely larger and growing more quickly.
The effects of build-to-rent globally
The B2R trend has not just impacted the United States. In 2018, Landlease, a UK property and infrastructure group and the Canada Pension Plan Investment Board (CPPIB) announced a plan to develop B2R communities across the UK. The plan indicated a target of at least 1.5 billion pounds of investment in the B2R sector. Clearly, investors in the UK are seeing the same trends that can be witnessed in the US, but despite an increase in build-to-rent, large London estate agent, Portico, reports that rents are rising.
Similarly, in Toronto, some 72,000 rental units were under construction across the country in the last quarter. That’s an increase of 12,500 from the same time a year ago, and nearly five times the number that were being built a decade ago.
Toronto based property management company, Buttonwood, told us, “It was recently reported that a staggering 37.9% of Toronto condos are not owner-occupied, which clearly suggests that investors are driving the housing market.”
However, despite a rise in investor-owned rental properties, rents are also rising in Canada’s most populous city.
It seems, though the build-to-rent market is growing globally, without rent control in place as it is in many US states, properties may remain out of reach for the many.
The reasons for the rise of B2R developments
The exponential growth in the build-to-rent sector of the real estate market is not expected to abate any time soon. In fact, the Urban Institute estimates that thirteen million single-family rentals will be added to the US property market by 2030. There are many reasons for the rise of B2R developments:
Renters are being priced out of home ownership
The increase in income disparity between the Millennial generation and the Boomer and Gen X generations have contributed to low homeownership rates. Without a large deposit for a home, Millennials have turned to renting and B2R homes. Renting a single-family home provides privacy and a chance at living in a home, something many Millennials would be unable to afford otherwise.
Flexibility is valuable to today’s tenants
In rental properties and build-to-rent developments, the landlord handles maintenance issues and repairs. Many tenants also enjoy the flexibility renting brings and the fact that they are not tied down to the property. If they receive a new job out of town, have a health or family issue, or need to leave for any other reason, moving on is easy.
B2R may be the future of home development, so long as it remains affordable. As the American public moves away from traditional homeownership, B2R developments walk an important middle line. They provide the comfort of home with the convenience of a rental property.
If you are a builder or investing looking to increase your real estate portfolio, or a renter looking to upgrade to a single-family home, the B2R sector may be the right choice. With such booming growth, it does not look like the market will be saturated any time soon.
However, builders and investors looking to break into the B2R sector have a few considerations to bear in mind. First, there are specific legal issues that come with buying land to build on and rent. These include closing conditions, HOA considerations, and construction warranties.
Second, it is also important to select the correct piece of property. With that in mind, the friendly team at LandHub can help. We recommend that those who are new to the sector should consider building small communities or just twenty homes. This provides an opportunity to scale while cutting down on the risks associated with purchasing more land at a higher cost.
View our property for sale, or find out how you can sell your land here. If you have any questions about purchasing land to build to rent, get in touch with our team on (844)-452-6348 or email us at [email protected].