Build-To-Rent Homes: A Renter’s And Investor’s Guide

In the past two decades, the percentage of renters has risen in the United States due in large part to the increasing costs of buying a home. In response to this trend, a new real estate market option has emerged: build-to-rent homes. These are homes (or, more often, whole complexes of homes) built specifically for long-term renters.

Whether you’re looking to build one of these homes as an investment, considering investing in build-to-rent via the stock market or looking to rent one of these properties as your primary residence, our guide is here to help.

Build-To-Rent, BFR And B2R Defined

“Build-to-rent (B2R)” and “build-for-rent (BFR)” are interchangeable terms for the same idea: detached units built specifically for the purpose of long-term rental. They are typically maintained by large companies rather than individuals. However, it’s possible for individual people seeking passive income through investment properties to invest in build-to-rent properties.

What Counts As A Build-To-Rent Home?

Build-to-rent houses can look like traditional, suburban-style family homes with front porches and backyards. They can also encompass a wide range of building plans, including the following:

• Horizontal apartments: This is a term for a tight cluster (generally numbering in the hundreds) of professionally managed, freestanding, single-family residences.
• Duplexes: This describes two living units that are attached to each other.
• Row homes: These are homes built side by side, sharing a common wall.
• Small lot homes: These are individual homes built close together. Where a normal home lot will generally be around 5,000 total square feet, including the yard, a small home lot could be as petite as 600 square feet.

What Percentage Of Properties Are Built To Rent?

As of 2023, build-to-rent properties made up an estimated 7.9% of single-family properties, but they’re currently on the rise. According to recent data, over 75,000 single-family built-for-rent properties began construction in 2023, which is about a 9% increase from 2022 and an all-time high.

Should You Rent A Build-To-Rent Property?

The decision to rent a home can feel less monumental than the decision to buy one. Nevertheless, it’s still crucial to weigh the many pros and cons. While leasing a build-to-rent home may feel like a safer choice, it can come with several financial and lifestyle drawbacks.

Pros Of Living In A Build-To-Rent Property

• Freedom from maintenance woes: You can experience many of the comforts of homeownership without the stressors of having to make your own repairs and do your own maintenance. Depending on your rental agreement, you might not even have to mow your own backyard.
• Creature comforts: Quality of life in build-to-rent homes is typically high. Many build-to-rent homes come with luxury features, including swimming pools and other communal amenities.
• Community: Built-to-rent communities are often more tight-knit and neighborly than apartment complexes.

Cons Of Living In A Build-To-Rent Property

• Cost relative to renting an apartment: Rental prices for build-to-rent properties are typically higher than rental prices for apartments.
• Cost relative to homeownership: If you buy a house, your mortgage payments will go toward amortizing your loan. Eventually, you will own a valuable asset outright and will not have to make any further mortgage payments.
• Small size: Build-to-rent properties can vary widely in style, but they are often smaller than other homes.
• Lack of personalization: Build-to-rent homes often lack the individuality of homes that were built for sale. If you find yourself drawn to the charms of an older home, build-to-rent properties may not be the best fit for you.
• Lack of freedom to remodel: Homeowners can repaint the walls, put in new floors and make other major changes to suit their taste and comfort. It’s unlikely that the option to make major alterations to your home will be available in the case of a build-to-rent home, though it may be worth discussing with any prospective landlord.

Should You Build A Home To Rent Out?

The current boom in the real estate market has made purchasing rental homes difficult for many investors. Prices and demand are high, and it can be difficult to be sure that you’ll get a good return on investment (ROI). For individuals looking to purchase a rental property, build-to-rent may seem like an attractive option. However, investment through building a build-to-rent property comes with both pros and cons, which must be considered carefully.

Pros Of Building Rental Properties

• Less tenant turnover: Apartments typically appeal to more temporary renters. If you build a property that people will move into long-term, you may save yourself the stress and hassle of frequently searching for new tenants.
• Get into the investment game sooner and with less competition: If there simply aren’t enough properties to buy, building one can help you get into the real estate investing game without having to enter into bidding wars at an auction or engaging in other competitive struggles that will lower your chances of a good ROI.
• More flexibility in where you build: If you want to get in on an up-and-coming real estate market, you may find it easier to build than to find a property that already exists there.

Cons Of Building Rental Properties

• More competition: There’s a reason that most build-to-rent properties are built by large-scale operations. Economies of scale work in the favor of these companies and against private individuals. You won’t be able to save money on appliance installations by building extra wide doors, for example.
• Potentially lower ROI: Buying a distressed property may be difficult during a housing market boom, but the less you spend, the easier it is to get a good return on investment (ROI). Investment strategies like the BRRRR method rely on flipping homes and increasing their value in order to keep that initial outlay down.

Can You Invest In A Build-To-Rent Property Without Building One?

One alternative for those excited about the potential of build-to-rent is buying stock in what is called a residential real estate investment trust (REITs).

Residential REITs specialize in acquiring or developing apartments or single-family homes in order to rent them out. If you feel that build-to-rent properties hold promise for the future, you may want to look into residential REITs that are actively pursuing this trend. If you buy stock in these companies, you could benefit from their success.

The Bottom Line

Build-to-rent is a hot trend for a reason. For those who don’t feel ready for homeownership or are struggling to save, build-to-rent homes offer an easy path to comfort and community. For investors, they offer a way out of an overly competitive market.

However, if you’re considering build-to-rent as either a renter or a builder, it’s worth weighing all the potential downsides. Conventional homeownership and apartment rentals both still hold many advantages, and for individual investors, build-to-rent may simply involve too much risk and too big of an expenditure.

If you’ve decided buying a home is the right move for you, take action and start your mortgage application with Rocket Mortgage^®.