A new trend has emerged in the real estate market: the increasing popularity of single-family built-to-rent homes. Arizona leads the way: In July of 2023, there were 2,011 built-to-rent homes planned or under construction per million residents statewide, the National Rental Home Council counts. The nationwide average was 345 (https://www.axios.com/local/phoenix/2023/07/07/arizona-built-to-rent-construction-housing). This shift addresses the pressing demand for rental housing and presents benefits for builders seeking to capitalize on an evolving market. Although it is gaining popularity, there are potential risks associated with these new communities.

 

 

Builders across the United States are recognizing the income potential provided by single-family built-to-rent construction. With 22,000 build-to-rent homes under construction nationwide in the final quarter of 2023 alone—a substantial 29% increase from the previous year—builders are seizing the chance to tap into a up and coming market segment.

 

 

Investing in built-to-rent properties allows builders to diversify their portfolios and mitigate risks associated with fluctuations of the housing market. By building to rent, investors can reduce their reliance on traditional home values. This diversification strategy enhances resilience and opens up new avenues for growth and profitability in an ever-evolving market landscape.

 

 

One of the primary attractions of built-to-rent construction for builders is the promise of steady, predictable revenue streams. Rental income provides a reliable source of cash flow over the long term. With a portfolio of rental properties, builders can establish recurring revenue streams that offer stability and financial security, even during periods of market volatility.

 

 

Built-to-rent homes are designed to meet the evolving preferences of renters, offering modern amenities and spacious floorplans that rival those of traditional apartments. By customizing the properties, builders can attract more renters. Additionally, the flexibility and convenience afforded by rental living appeal to those seeking a lifestyle free from the maintenance of homeownership, increasing demand for these properties.

 

 

The growing demand for rental housing is influenced by the cost of money. As interest rates decline, so will the demand for rentals as it becomes more affordable to purchase.  With the potential for declining rental rates due to the over saturation of rental units being built and the decreasing demand for rentals influenced by the declining interest rates, build-to-rent developments may be at risk in the long term.

 

 

The emerging trend of built-to-rent construction presents builders with a host of opportunities to thrive in the dynamic housing market. By capitalizing on the growing demand for rental housing, diversifying their portfolios, and establishing steady revenue streams, builders can position themselves for success and resilience. As the trend continues to gain momentum, builders stand to reap the benefits of this investment strategy.

 

 

Summer Beydler