The build-to-rent (BTR) sector began with builders and real estate developers and has grown into a multibillion-dollar investment strategy used by institutional investors, pension funds, and publicly traded REITs. BTR investments provide excellent returns through appreciation and rental income. Investors are drawn to BTR because it offers the ideal combination of affordability, flexibility, and demand.
Individuals can rent townhomes, multi-family units, or single-family homes in the BTR sector. These BTR developments are more akin to traditional, gated neighborhoods with community amenities than low-density multi-family properties or clusters of single-family tracks. They are typically larger homes in prime areas with excellent schools close to jobs, culture, and recreation.
BTR Outlook
An article in Forbes magazine featured the BTR boom as much more than a passing trend. In fact, according to market research firm Hunter Housing Economics, investors are putting about $40 billion into build-to-rent development in the next 18 months. Hunter Housing Economics also estimates that BTR developments make up about 10% of the country’s new homes today. In addition, build-to-rent assets have outperformed traditional multi-family over the last two years and will continue to do so, according to real estate broker Cushman & Wakefield.
What’s Behind the Build-to-Rent Boom?
The simple answer is economics. According to Zillow, the average U.S. home price hit $287,148 in May 2021, a 13.2% increase from the prior year. While rents are also up at about 10.9% year-over-year, renting is still more affordable than purchasing a home. At the same time, household incomes have not kept pace with rising home prices. Inflation and higher lending rates have also eroded consumer buying power. The confluence of these factors has made it more difficult for people to buy homes, including millennials who are now ready to start having families and looking for homes.
Renting a single-family home, townhouse, or condo delivers the benefits of home-like living in a family-friendly community with good schools, recreational opportunities, and nearby restaurants and bars without having to come up with a down payment and a high-interest mortgage. Investors
understand this and have tapped into this market with build-to-rent options. While most millennials are hesitant or unable to put down a 20% down payment on a home, they are willing to pay a higher monthly rent.
Millennials are not the only ones flocking to build-to-rent properties. Baby boomers are also looking to lower their household expenses and have less upkeep, making the build-to-rent option ideal for them as they downsize.
Real Estate Insurance
Seneca Insurance Companies provide a commercial package policy that combines property and general liability coverage or a monoline property option for larger individual buildings and larger schedules. Capacity is available up to $75 million per building with no TIV restriction on schedule size. Our appetite includes condominiums and apartment buildings as well as office buildings and light commercial and industrial buildings.
