Build to rent (BTR) is a real estate investing strategy where a real estate investor or company purchases land to build a single or multiple homes for the purpose of long term rentals. This is different than build to sell in that the investors will maintain ownership of the properties for passive income. Build to rent is a great option in a buyers market when compared to a fix and flip investing strategy as you can build the home and make income, then sell once the market shifts back to a sellers’ advantage.
And build to rent does not mean you’re limited to a single home. Larger companies will buy large swatches of unimproved land to build entire rental home communities, and in some cases a neighborhood. And you’re not limited to building single family homes with a build to rent strategy.
You can also build:
- Row homes
- Small lot homes
For larger build to rent projects, there are advantages for the investor. Because the investor controls the land, they can include playgrounds, pools, onsite management, and other features that allow for higher rents. And because the renter is renting in a community, it becomes more of a lifestyle and benefit to the person, so the investor will see less turnover compared to a standalone house with no amenities or sense of community.
Another benefit of build to rent is that you can start with energy efficient appliances and windows, incorporate solar panels and other cost reducing supplies, not to mention having to worry about discovering broken foundations and rotting frames. This makes it easier to make a profit more quickly, and provides less obstacles to getting a property ready for market. You may also find builder warranties as an extra peace-of-mind as the warranty may cover correcting builder related issues with the home during in the first couple of years. This also saves you money with maintenance costs compared to a fix-and-flip model.
But there are some downsides to build to rent as a real estate investing strategy. The ROI on this type of investment can be lower than a fix and flip because the upfront costs are usually higher and you’re not selling for an instant profit. You could also find issues where parts of the land are not zoned for residential use, and this can be prevented by having a title search done. And last, if you’re buying a plot of land that already has a community, double check to make sure there are no bylaws preventing a certain amount of rental units. You may find that your build to rent strategy is not going to pan out, and then have to sell the land back or build to sell.
Build to rent is a great real estate investing strategy if you know people will be looking to rent vs buy, like if you’re near a military base. It can also be smart for areas with jobs that require people to move like university employees and tech consultants. Just make sure the land can be used for residential purposes and there are no community bylaws preventing you from renting the units out.