Build-to-Rent: The Growing Trend in Real Estate Investment
The real estate market has always been an attractive investment opportunity for many people. However, traditional approaches to real estate investment such as flipping, owning rental properties, and fixing and flipping have become more competitive and less profitable in recent years. As a result, investors are turning to alternative methods to generate steady cash flow and high returns. One such method that has been gaining traction in recent years is the build-to-rent model.
What is Build-to-Rent?
The build-to-rent model involves the construction of purpose-built rental properties that are designed specifically for renters. These properties are typically managed by a single investor or company and offer long-term leases to tenants. This concept is not entirely new, as it has long been popular in countries like Germany and the Netherlands. However, in recent years, it has been gaining popularity in the United States, and many experts predict that it could be the next big trend in real estate investment.
The Rise of Build-to-Rent in the U.S.
According to a study by John Burns Real Estate Consulting, the build-to-rent market has seen a significant increase in the last decade, with the number of units built each year doubling from 2012 to 2017. The study also predicts that the number of build-to-rent units could grow by 25% annually over the next few years. So, why is this model becoming so popular in the U.S.?
The rise of build-to-rent can be attributed to several factors. Firstly, millennials – the largest demographic group in the country – are increasingly entering the rental market. Many of these individuals are high-earners who prefer to rent rather than buy a home. Secondly, the recent economic downturn and tight mortgage rules have made it difficult for first-time homebuyers to enter the market. This has resulted in an increase in the demand for rental properties.
The Benefits of Build-to-Rent Investments
So, what makes the build-to-rent model such an attractive investment opportunity? Unlike traditional rental properties, build-to-rent properties offer several benefits to investors, including:
1. Lower Maintenance and Operating Costs
Build-to-rent properties are designed and built with specific tenants in mind. This means that the properties are newer and often require less maintenance, resulting in lower operating costs for investors. Moreover, since these properties are managed by a single investor, there is no need to pay a property management company, further reducing costs.
2. Stable Cash Flow
With long-term leases, build-to-rent properties provide investors with a stable and predictable cash flow. This makes it easier to plan and manage finances, making it an appealing option for those looking for a steady income stream.
3. Potential for Higher Returns
Unlike traditional rentals, build-to-rent properties are designed to appeal to tenants with higher incomes. As a result, these properties can command higher rents, providing investors with the potential for higher returns.
Challenges to Consider
While build-to-rent may seem like an attractive investment opportunity, it is not without its challenges. Firstly, this model requires significant upfront investment, as investors are required to fund the entire construction of the property. Moreover, since these properties are built specifically for renters, there may be fewer potential buyers if the investor decides to sell the property in the future.
Another challenge is the potential lack of diversification. Unlike other real estate investments, build-to-rent properties are often located in a single area, meaning that investors may not have the benefit of diversifying their portfolio across different markets.
Final Thoughts
The build-to-rent model is a growing trend in real estate investment and offers many potential benefits. However, like any investment opportunity, it is essential to thoroughly research and understand the risks involved before making a decision. With the right approach and due diligence, investors can take advantage of this emerging trend in the real estate market and potentially reap great rewards.
