A decade ago, the foreclosure crisis shook the housing market. Investors quickly flooded in, buying millions of distressed homes with the intention of turning them into lucrative rental properties. They transformed what had been a small, family-owned and operated market into an official large-scale formally managed asset class. And it shows no sign of slowing.
Today, distressed homes tend to be scarce. Foreclosures and short sales make up only 2% of home sales, significantly less than the 49% reported in March 2009. Since the existing housing market continues to be pricey, investors are turning to purchase newly built homes, causing an explosion in the “build-to-rent” market. Increasingly, big companies are eyeing the build-to-rent market due to its promising ROI.
Homebuilding Companies Scramble to Take Advantage of the Build-to-Rent Space
In Tampa, Florida, ERC Homebuilders are launching a “soft” IPO in the hopes of raising $100 million to build over 1,000 rental homes throughout the state. The Florida-based builder is offering investors private shares using a form of investment crowdfunding known as Regulation A+. This crowdfunding enables small accredited and non-accredited companies to raise limited funds from the general public. All the homes will be built on adjacent tracts to make property management easier and less costly. The homes will then be sold in bulk to large-scale investors.
Lennar, the largest homebuilder by revenue in the nation, has been experimenting with a build-to-rent community in Sparks, Nevada. The community consists of 80 new homes that are available to rent starting at $1,499 a month for 1,210 sq. feet home, rising to $1,999 for a 2,182 sq. foot home. Lennar recently announced that they would be moving even further into the build-to-rent arena by partnering with a third-party partner to create a standalone rental community in Florida. Lennar’s President, Rick Beckwitt said of the project, “This community is in Florida and is the first in what we believe will be an ongoing business strategy and relationship where we build and sell homes in bulk on land owned by third parties with no lease-up risk.”
Millennials and Boomers Drive the Demand of Build-to-Rent Properties
Beyond the lack of foreclosures and short sales, why is the build-to-rent market becoming so popular? Renters are showing an increasing preference for living and raising families in single-family homes as opposed to apartments. The demand is seen particularly among the millennial generation. Many millennials are at the age where they’re getting married, starting families, and making the decision of whether to rent or own. Due to student loan debt, a general lack of capital, and other factors, many millennials can’t afford to buy a home, while others simply prefer the flexibility of renting.
Likewise, many baby boomers are in the same situation. Boomers are choosing to move into a smaller home, wanting greater flexibility and a release from the responsibility of homeownership. As of 2017, renter households that were over 60 years old was up by 43%, growing from 6.55 million to 19.11 million. This outpaced older owner households, which grew by 31%.
A Growing Trend Toward Build-to-Rent for Investors and Renters Alike
The number of build-to-rent homes has increased over the past couple of years. According to the National Association of Home Builders, 37,000 new rental homes were built in 2017. That number rose to 43,000 in 2018, accounting for just under 5% of total single-family housing starts. However, these numbers are just for homes built and held by builders for rent; it doesn’t include those that are sold directly to investors. The total numbers are most likely larger and continue to grow.
There are many benefits for investors to buy new, particularly with homes that are conveniently located within the same community. Investors don’t need to worry about the typical repairs that come with a 15 to 20-year-old home. Additionally, the new build-to-rent homes come with a general contractor warranty, as well as limited product warranties on appliances. The only operating expense landlords are responsible for is landscaping.
The rents for single-family homes continue to grow rapidly at 4.5% annually versus 3% rent growth for multifamily apartments. There also tends to be significantly less turnover in single-family rentals. Additionally, the rental market isn’t as unstable as the home sales market is. As homeownership becomes less attainable for many, many renters find great appeal in being able to have the same comforts as owning a single-family home paired with the affordability and flexibility of renting. While they may not own their home, there’s now less of a stigma around renting as home prices continue to soar and the interest in homeowning wanes.
While the number of build-to-rent homes is still a relatively small part of the housing market, the rate is expected to increase significantly over the next several years. Currently, one in ten households lives in single-family rental housing – approximately 12.7 million out of the 120 million households in the United States. As the median age of the population increases, it’s expected that the demand for rentals of all types will rise as well.
An Increase in Interest Means a Greater Need for Screening
Whether you have plans to get in on the build-to-rent market, one thing is certain: we’re likely to continue to see the interest in rentals rise over the next decade, bringing with it an increase in applicants. With such high interest, it will be even more essential to screen all applicants to ensure they’re a good fit for the property. The level of competition will be higher, giving landlords and property managers an advantage when it comes to finding the right tenant.
With our tenant screening services, you can eliminate the guesswork and save valuable time. We currently serve over 35,000 property managers, landlords, and other clients as a primary source for background checks, tenant screening, credit checks, criminal and eviction history, and more. We offer a 100% guarantee on the accuracy of all reporting, so you can order with confidence. All our reports are accessible online, 24 hours a day, 7 days a week. Explore our services online or give us a call today at 1-800-523-2381.
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