Written by: Gabi Breuer
In times when the housing market is unstable and homeownership becomes increasingly more expensive, build-to-rent has become a viable housing option. BTR is a real estate investment strategy where developers build properties specifically for long-term rental. These properties are oftentimes single family homes, with yards and private garages, but have communal amenities like gyms and pools.
The build-to-rent market has been emerging in recent years with the United States experiencing a housing crisis. In 2024, the BTR market outperformed itself with 39,000 single family rental properties finishing completion. That number is nearly six times that of properties prior to the pandemic. This increase in supply comes from a change in type of rental properties tenants are looking for. In particular, tenants want more space and access to a suburban lifestyle without committing to a mortgage.
It comes with no surprise that the build-to-rent market has skyrocketed predominantly in southern states. There are two main reasons for this: population growth and space. First, southern states have experienced a wave of new residents, searching for a more affordable lifestyle. Metropolitan areas like Dallas and Charlotte have grown as business centers, naturally bringing in more residents. Texas added around 560 thousand new residents in 2024 who naturally needed new housing. Second, southern states tend to have more space available. On average, a BTR project site needs twenty acres, land that is not easily acquired in cities fully developed.
While build to rent offers a more traditional Levittown feel to rentals, these properties require professional management, a large expense, which brings into question why investors are willing to fund these projects. The answer is quite simple- stability. BTR is designed to attract long term renters. Whereas a traditional multifamily property operates on six to twelve month leases, a built-to-rent property tenant may sign a lease of up to three years. Locking in rent for that period of time guarantees investors a steady flow of income. In addition to reliable cash, build-to-rent is an easy way for investors to diversify their portfolio.
Investors clearly benefit from BTR, but renters can too. As home affordability decreases, millennials and gen z specifically, are driving up the demand for rental properties. Economic factors like student debt and high interest rates have pushed back the average age of a first time home buyer by ten years to 38. In other words, that is ten more years of renting.
Besides affordability, build-to-rent also presents other perks. Many project sites include community centers, with state of the art fitness facilities, pools, and other amenities. As mentioned, BTR sites require professional management, alleviating tenants from taking on the responsibility of maintaining these areas themselves. Furthermore, this same management allows for on-demand maintenance, similar to that of an apartment building. Lastly, build-to-rent sites are chosen thoughtfully. Developers understand their potential tenants are young professionals looking to live a more suburban lifestyle while commuting to work in urban areas. As a result, BTR properties are oftentimes located in prime locations; near public transportation or highways.
Like any investment, build-to-rent comes with its challenges. A typical project with 200 units requires a total capitalization of $60 million to cover construction costs. For a developer looking to construct 5,000 units in five years, that’s around $1 billion. High upfront costs are a barrier of entry for individual investors or even smaller developers. Although BTR is taking off, it is still relatively new in the US, meaning the legal framework concerning the construction of these sites has not been thoroughly established. Zoning and building regulations can present challenges for developers.
Build-to-rent projects are also sensitive to economic changes. In particular, interest rates can sway the demand for these properties. Currently, the US is experiencing high interest rates making home ownership less affordable. This increases the demand for BTR. However, high rates also increase the costs of financing these projects, an expense investors must offset somehow.
Although the central bank stated in quarter one it would not be lowering interest rates in the near future, the BTR market is susceptible to fluctuations in rates. If rates are lowered, home ownership becomes more attainable and buyers will be more willing to take on mortgages. Simultaneously, competition for land would increase as traditional homebuilders expand construction to meet a heightened demand. Land prices would increase, tightening margins for BTR developers.
All new developments within the housing market are littered with uncertainties as the nation navigates a rapidly changing landscape regarding tariffs and interest rates. However, if the build-to-rent market continues on its trajectory, it undoubtedly will continue to grow, providing accessible housing to millions of Americans.
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