Why You Should Consider Build-to-Rent as an Investment Model

New Construction
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11 Jan 2022
5 min read
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Investing real estate is not limited to the buying and renting of a quadplex or other multi-unit dwelling. Smart investors also look to find land and build new construction homes meant to be professionally managed and rented out as well. If it sounds like a lot of work when there are plenty of already existing homes ready to be bought, you’re not entirely wrong. However, the build-to-rent (BTR) model creates additional opportunities for people who might desire the space and privacy of a single-family home but not have the money to purchase one. A happy compromise?

Renting new construction.

Unlike apartments, foreclosed homes, and other already lived-in properties, investors who opt for the build-to-rent route offer communities anew way to strike a balance between owning a home and achieving a modicum of privacy. More specific to investors, BTR opportunities can result in fewer rental turnovers (traditionally less than tenant turnovers in multifamily complexes) and can result in great wealth-building opportunities.

But how can you invest in build-to-rent residential real estate?

Explore the loans and tax credits available to you

This isn’t the best option for a newcomer investor, but for those with a glowing track record and some experience under the belt, a BTR loan might be a route worth exploring. Similar to a construction loan, the major discrepancy here is that you’ll be building to rent instead of to sell. With that, you might be able to participate in the Low-Income Housing Tax Credit if you can prove that a certain number of your units will be occupied by low-income renters.

As a result, you would get 10 years of tax credits on your new-build properties.

Explore reputable REIT options

Real estate investing trusts, or REITs, are companies that own or finance income-producing real estate across a range of property sectors. They provide investment opportunities to people who may want to enter the real estate market but may not have the funds or experience to do so. As a result?

Just about anyone can invest in portfolios of real estate assets and as stockholders, they can earn a share of the income producedwithout buying, managing, or financing a property. It’s a low-cost route for new investors to dive into the world of BTR real estate development.

Explore the possibility of investing in a builder or developer

Opting to invest in a developer or builder can be a great way to bulk up your portfolio with BTR opportunities, as well as properties that are for sale. Investing in one developer with strategically planned BTR communities is far easier to manage and track than investing in dozens upon dozens of individual BTR units.

In cases where housing inventory is low, a BTR game plan cannot only put you in front of the competition, but can also afford you more flexibility for how, when, and where to develop properties. Suddenly, targeting up-and-coming communities may seem more feasible or make more sense. As a result, there is the possibility of asking for more rent (typically, rent for single-family homes tend to be higher than multifamily structures).

Ultimately, BTR investment opportunities can open doorways for new investors who are looking to slowly build and diversify their portfolio. Opting for single-family properties, duplexes, or quadplexes are far more affordable options than attempting to scoop up a larger apartment complex or condominium. On average, lending institutions typically ask for a 20% down payment for an investment property. If a single-family home on the market costs $200,000, you’ll only need $40,000 to acquire it. If a multi-unit apartment building is priced at $1,000,000, you would suddenly need $200,000. Additionally, opting to sell a smaller property is far more feasible than attempting to sell an apartment complex that is more likely to tie you down long-term. As a result, investors have an easier time diversifying their portfolio by investing in more properties or in various geographical locations.

Between the pandemic creating a new set of checklists for people house hunting, and the economic struggles that have stemmed from the global health crisis, many are looking for ways to have their real estate cake and eat it too. There is great opportunity to be seized in the BTR market and for those ready to learn more about the pros and cons of taking the leap, contact Temple View Capital today.