The Rise of Built-for-Rent
By Kristi Waterworth
February 10, 2023
View source version HERE
Built-for-rent housing may be the next big thing in multifamily living. It provides tenants more privacy than an apartment complex, with similar ease of care for landlords.
The housing market continues to be incredibly tight for home buyers, with just 2.7 months of available housing supply for sale as of November 2022, but it’s also not been a picnic for renters, who are fighting for units in an increasingly tightening (and expensive) market. Real estate investors have come up with a sort of middle ground solution to both of these issues: built-for-rent (BFR) housing. BFR has been getting a lot of attention lately, and for good reason.
What Is Built-for-Rent Housing?
BFR housing, sometimes called “build-to-rent,” is a fairly new twist on an old concept. Of course, everyone knows about houses for lease, and a lot of people have even owned them as investors. But BFR is a little different. Instead of just having a house here or there, BFR homes are clustered together and form a community, much like an apartment community, and with many of the same amenities.
“What we mean by ‘build-for-rent’ is that we build what's essentially an apartment building as a defined community,” says Ben Miller, co-founder and CEO of Fundrise, a real estate investment platform headquartered in Washington, D.C.
“There would be a leasing office and a pool or fitness center, but instead of having it stacked up, you have it laid out horizontally. Those homes could be townhomes or little cottages, or detached single family houses. It really depends on the geography," Miller says. "Obviously if you're in urban infill, it's going to be super dense, but if you're in suburban Houston, for example, it's going to be detached. From an institutional point of view, it operates like multifamily or apartment buildings and from a consumers point of view it lives like single family.”
Although potential tenants are finding this new type of property appealing for a number of reasons, landlords really like BFR, too, because they’re designed to make owning single-family rentals much easier than they’ve ever been.
“Geared at having several years or more per tenant stay, BTRs can offer a staggering 74% renewal rate,” says Jack Richardson, licensed real estate salesperson at SERHANT in The Hamptons, New York. “BTR can be incredibly useful to landlords, as they can be properties built and designed for easier renovation or correctional work, access to systems, and they are traditionally more well equipped for turnover, while encouraging less of it, and an assortment of clientele.”
How Built-for-Rent Housing Helps Tenants
According to a recent Fannie Mae study, the vast majority of metro areas in the United States suffer from a lack of affordable single-family housing for both renters and homeowners, with a cumulative affordable housing shortage estimated at about 4.4 million total units. This is one thing that BFR can address relatively rapidly, as it begins to scale more widely.
Because the homes in BFR communities are put together all at once, and in bulk, they can, in theory, go up a lot faster than single-family subdivisions, where builders constantly check in with home buyers and defer to their questions and concerns as the construction goes along. Now that the groundwork has been laid, and developers are figuring out how to work with cities to zone their BFR projects, you’ll see more of these homes popping up across the country, also potentially helping to address some of these affordable housing concerns.
“(BFR) creates a way to build more supply in the market a lot easier,” says Miller. “It’s usually easier to do a BFR community than an apartment building, when it comes to complexity and pushback. If I go into a nice suburban neighborhood, and I build 100 single-family homes, people would be OK with that, where they may object to an apartment complex.”
According to Miller, almost anything is possible in a BFR community, depending on what the community itself wants. Because the goal is to get tenants to stay longer, listening to their needs is really important. The flexibility of BFR is also its strength, allowing the community owner to make all kinds of changes, from installing communitywide solar systems to converting units into small commercial ventures like neighborhood cafes. The possibilities are really endless.
What Makes Built-for-Rent Housing Different?
As Miller explains, BFR housing looks similar to other housing on the surface. To renters, a BFR neighborhood is exactly like any other neighborhood, although it might have more amenities than you’d generally have with a basic homeowner’s association. For a developer, however, BFR requires a completely different approach.
That’s where BFR really deviates from a standard neighborhood. Instead of each house being planned and build separately, they’re all designed to work together as a rental community. Each house is designed for efficiency when it comes to repairs and maintenance, of course, but the entire community is also different legally.
Many municipalities are still trying to figure out how to zone these communities, but they’re often treated as a single property, according to Miller. Instead of each house having its own deed, the entire property is deeded by itself, so the entire community stays together legally, even if it’s sold at some point down the line. Many have required new types of zoning to accommodate them, since the homes all share the same piece of land.
For a tenant, you’ll notice that maintenance you might have been responsible for on other detached homes is no longer part of the deal. You often won’t need to mow or maintain the outside of your home, since all of that is part of the community’s property. Check with your lease for the details, but expect to find that a BFR community affords the privacy of a single-family home without all the upkeep.
Where Is BFR Happening?
BFR communities are still a small percent of the overall housing picture, with just 68,000 homes completed between September 2021 and September 2022, according to the National Association of Home Builders. BFR made up only about 6% of the housing built during that same period, but the numbers of this new type of housing are growing dramatically. Those 68,000 units are an increase of 42% over the same period the year before, and with so many projects in the pipeline, even more communities are expected to pop up between now and 2030.
Companies like Fundrise are pushing the boundaries of what rental housing can be in markets across the country. Miller explained that good markets for BTR have been in flux, with Austin, Phoenix, Orlando and Tampa being popular building locations for his company in 2022. However, some markets have longer term potential for new communities.
“Places that have been more stable, but still good, include Charlotte and Atlanta, and Charleston, South Carolina, and Nashville. Those are still hot, without as much oversupply.”
No one can say for certain where BTR will appear next, but Miller has his suspicions. With a growing EV industry and other tech giants moving in, Ohio might be the next big thing. “I think Columbus has a lot of the right stuff.”
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