Why Building Rental Properties is so Hot Right Now
Build to rent housing has become one of the fastest growing real estate investment market strategies. Build to rent homes were booming prior to the pandemic, and the demand is even higher in today’s rising rent environment.
2021 was a record year for single-family rental home construction; 6,740 build to rent homes were completed. A RentCafe study projects that roughly 14,000 build to rent homes will be completed in 2022 – an increase of 106% YOY.
More than 100 million people have opted to rent instead buying a home. The reasons for that choice have changed over the past two years. 2020’s COVID-induced mass exodus from urban areas to the suburbs created a demand for build to rent single-family housing, which is exactly where the concept works best.
Families with young children, single parents, millennials saddled with student loan debt, young professionals who primarily work from home, divorcees, and dog owners were the prime drivers behind the growth of the build to rent concept because they composed a growing rental class. More renters meant higher rents, which is more profit for build to rent investors.
As the housing market heated up, however, some renters were priced out of buying homes because of increasing home prices. Now, home prices have peaked, but rising interest rates have made homebuying more expensive—again pricing renters out. The build to rent concept has provided access to single-family home living for those who want or need a SFR home but can’t afford to buy.
*2022 data represents build to rent homes under construction in U.S. markets where
data is available and is subject to change. Unit numbers may be rounded.
The demand for single-family home rentals has prompted investors to get creative so they can provide desirable housing options for those in the rental market. This has accelerated the development of build-to-rent homes and neighborhoods.
Economic strength and growth, coupled with low supply and high demand, make cities like Phoenix, Dallas, and Minneapolis ripe for build to rent development and prime for investors who want to capitalize on the build to rent strategy.
The Reason Behind the Build to Rent Boom
For the past two years, the housing market has seen brisk demand from buyers, which drove home prices and sales through the roof.
Everything changed in the first half of 2022. As interest rates rose, it became harder for homebuyers to purchase. For the first time in 13 years, mortgage rates crossed the 5% threshold, and now they’re closer to 7%.
The impact of rising mortgage rates has been huge on renters.
Real estate experts believe that until recently, many renters chose build to rent housing by choice. But now, with the average payment on a 30-year fixed mortgage for a newly constructed home up 82%, would-be homeowners are forced into renting.
When the economy tightens, fewer people buy houses, resulting in higher rental occupancy and longer-term tenancy. Higher unemployment, if it arrives, would lead to more single-family renter household formations, as cost-burdened families in need of more space are less likely to make a big purchase and more likely to find a solution for a few years.
What Investors Should Know about the Build to Rent Strategy
The combination of solid profits and maximum flexibility means that the build to rent concept is set up to provide ROI that is both solid and dependable for real estate investors.
With the build to rent market so hot, the last thing you want to do is miss out on a profitable investment opportunity. Whether you’re interested in build to rent loans or new construction loans for investors, Lima One has the financing options you’re looking for.
As the nation’s premier private lender, we offer the industry’s best new construction hard money loans and the most flexible suite of rental loans. When it’s time to fund your next build-to-rent project, let Lima One help you.