In 2021, 6,740 new built-to-rent (BTR) homes were completed — the highest yearly total to date, according to Yardi Matrix data. This has more than doubled in 2022, with an estimated 14,000 BTRs under construction.
Also known as single-family rental (SFR) and single-family-built-to-rent (SFBR), BTRs are built for long-term rental and typically maintained by large companies. They come in a variety of shapes and sizes:
- Horizontal apartments. A tight cluster (generally numbering in the hundreds) of professionally managed, freestanding, single-family residences.
- Duplexes. Two living units that are attached to each other.
- Row homes. Homes built side-by-side, sharing a common wall.
- Small lot homes. Individual homes built close together in lots as small as 600 square feet.
Rental home communities are prevalent in low-density areas, with 61% located in suburbs. Renters are driving this BTR demand because they:
- Want space and privacy in light of the pandemic.
- Can’t afford down payments because of student loans and high home prices.
- Desire single-family home living and carefree maintenance without a mortgage.
- Are relocating for a new job and want to test-drive a neighborhood.
About 78% of renters said they were interested in living in a community of single-family homes, according to a RentCafe survey of 3,300 renters.
Benefits and challenges for builders
BTRs offer builders the following potential advantages:
- Diversity of renters; tenants come from all age groups
- Return on investments can be higher than apartments
- Less turnover in single-family rentals and less volatile market
- Builders can keep building during market corrections
- Rent premiums potentially 15% to 25% higher than nearby apartments
- Double-digit overall operating expenses as a percentage of revenue (LGI’s was 11.4%)
- Easy to attract investors because of speed to revenue (fully leased within a year), lower costs and profit potential
- Faster rent growth: 4.5% annually compared with 3% for multifamily apartments
- Freddie Mac and Fannie Mae have underwritten and approved BTRs for loans
Builders have several options. They can sell the entire community to a landowner-operator for higher profitability and quick ROI or build up their own rental portfolio to leverage better investment deals for future projects.
The challenges to building BTR communities are similar to those of building homes for sale. Large tracts of land must be acquired, entitlements settled, and approvals acquired.
The BTR trend continues
The BTRs market may be here for quite some time. U.S. homeownership is currently below 66% and is expected to keep declining during the next 20 years. The Urban Institute predicts another 13 million rental households by 2030.
