The Appeal of Build-To-Rent
A Future in the Making
by Andy Bates
It is no secret that the US housing market has seen significant appreciations in recent years, and many are struggling to find even entry level homes in today’s market. When considering this in combination with a well-known lack of inventory, it is no surprise that first-time home buyers are struggling to find their first home.
This demographic is comprised of many young families and other prospective homebuyers who have come of age in the market but are still struggling to find property, let alone obtain it. This is where a relatively recent investment strategy has positioned itself to meet the needs of the market. It hopes to provide for more single-family-style housing while still making the largest number of units available and ensuring a sense of privacy.
It also hopes to provide investors with an opportunity to hold supply in the market. It is called build-to-rent, and here is how it can be leveraged as an investment strategy.
Building History
Build-to-rent (BTR) is an investment strategy that has joined the family of residential asset classes in recent years. Having first gained traction in 2018, build-to-rent has seen considerable popularity and market share by activity. Since laying its first bricks, BTR has been picked up by prominent builders in the industry with others following close behind. D. R. Horton and Lennar were some of the first major builders to provide for BTR with other substantial players, like Meritage, following suit. This means that most major players provide for build-to-rent investments.
It has been widely reputed that the advent of the 2020 pandemic “poured fuel on the fire” that was already stoking within the build-to-rent sector. The social strategy of isolation in response to the pandemic resulted in a push by those with purchasing power to expand outward into less-populated areas.
One element that has helped BTR communities find a home in a variety of desirable locations is their ability to overcome pivotal “not-in-my-backyard” (NIMBY) objections with which established neighborhoods often respond to new developments.
During BTR’s post-pandemic push, Ben Miller, co-founder and CEO of Fundrise, LLC, put it succinctly, “If I go into a nice suburban neighborhood, and I build 100 single-family homes, people would be OK with that, whereas they may object to an apartment complex.”
This highlights how BTR communities fit well into established aesthetics in a given municipality and speaks to why they are so attractive to renters with their homely quality. For all these reasons, BTR has found a home in a variety of environments, and with such variations come an equal assortment of what a build-to-rent investment might look like.
Building Characteristics
Although build-to-rent units may express differently, there are several characteristics which show a familiar resemblance. The ultimate definitions for what are considered to be built-to-rent properties are determined by the Census Bureau. This definition includes “all houses built on builder’s land with the intention of renting the housing unit.”
Some consider this category to be too far-reaching, as the Census Bureau definition includes properties intended for student housing or elderly-and-assisted living facilities. These examples certainly fall outside the family of common residential investments. With this in mind, it is worth narrowing in on which attributes successful build-to-rent investments have in common.
Most BTR investments operate as rental communities, with a uniform property type repeated over several adjacent lots. While some BTR communities may be comprised of townhomes, others may be made up of cottages or other detached, single-family houses. The emphasis with build-to-rent is on space, privacy, and a lack of shared walls, particularly above and below the unit, as there might otherwise be with traditional apartments.
It is not uncommon to see BTR concentrated in the range of six to twelve units to an acre, each with access to a yard or patio space. The developments themselves can range in size. Some may be as few as those six to twelve units sitting on a single acre while others may contain as many as three hundred units creating entire neighborhoods. These communities aim to strike a balance between the freedom of traditional single-family homes and the convenience of access to apartment-style amenities. This also tends to include institutional, professional property management services so that residents do not have to handle their own landscaping, maintenance, or repairs.
Build-to-rent properties typically employ a leasing structure of 1 to 3 years, which may be why the asset class maintains such a stable occupancy. This is well documented, with multiple reports citing 5% or lower vacancy rates in recent years across the asset class. To investors familiar with the asset class, BTR’s innate appeal and its timely emergence into the industry might make the sector’s appeal obvious. However, it is still worth having a conversation about what makes a BTR deal work.
Building Out
With entry-level home prices still out of reach for many new families and other prospective homebuyers, it is easy to see the appeal of the build-to-rent asset class. This is especially true for investors familiar with what has been historically required to build a new residential asset and hold it for cashflow.
When undertaking a ground up project, previously investors would have to secure funding for its construction first and then refinance the property for the long term to be able to hold it for its rental income. Since its inception, BTR providers have underwritten the deals in such a way as to cover the initial build along with the terms to hold it for rental revenue in a single closing. As mentioned, the build-to-rent asset class tends to be constructed as a community. This means that not only are deals simplified in terms of the number of closings required, but the number of units involved makes for a larger deal size overall.
Arbor Realty Trust hailed 2024 as a banner year for BTR development, citing over 24,000 unit starts in Q3 of 2024. That total is part of a full end-of-year figure at 78,000 units having begun construction as of Q4 2024. Turning the corner into 2025, some market data to the contrary emerges.
In an update released early in March of 2025, Brad Hunter, of Hunter Housing Economics, a market data firm, reports that build-to-rent starts fell 38% year-over-year as of February 2025. To many, this may signal a nose-dive in the BTR asset class, but there is more insight to be gleaned from this recent Census Bureau data.
With starts down for BTR this means deliveries of inventory in 2026, and potentially through ’27 and ’28, will also be down. Therein lies an opportunity for those investors able to get BTR starts going in 2025. When the projects become deliverable, they will be faced with much less competition in the next few years, creating an opportunity for investors looking to capitalize on the asset class.
Build a Knowledge Base
It is true that BTR has found success in a variety of markets across the country, but location should be carefully considered to ensure a worthwhile investment. Since BTR sells itself in part on available amenities, investors will want to not only choose a location where rent figures are strong, but also an area where up-to-date amenities exist. Walkability, local retailers, public transit, parks, and locale are all things to investigate when researching a potential BTR investment.
To reach the closing table, developers will want to ensure that their financial foundation is a solid one. While private lenders may not expressly look into debt-to-income ratios, investors will want to have strong credit. With recent shifts in the market for BTR, a detailed investment strategy will also be crucial for securing funding. Both feasibility and profitability should be considered in depth. A detailed model of financials can not only help to mitigate risk but can also determine a project’s viability in a given area market before any commitments are made.
Build to Succeed
At a time when home ownership appears out of reach for so many, the industry requires creative solutions to ensure that people’s needs are met. When it comes to adding inventory to the space, build-to-rent has expanded upon pre-existing solutions for single-family housing. The relatively young asset class has had a strong showing in the real estate investment space in recent years.
BTR fits well in a variety of markets and can adhere to a multitude of single-family building conventions. It appeals to prospective homeowners by providing a slice of privacy, replete with modern amenities for comfort, all without the cost to time and maintenance through professional property management. BTR makes sense for investors comfortable with larger unit counts and, thereby, those who may be investing jointly. It makes sense for investors looking to build new properties to hold for income and who can mitigate time and costs through a single, unified closing.
Even with apparent shifts affecting its numbers more recently, there remains much potential for build-to-rent projects as a whole. For investors considering BTR, it will come down to a critical eye for the market, an understanding of the current times, and a sheer, bold-faced business acumen.
