Sell for More Trivia is a weekly blog series that playfully presents a trivia question about commercial real estate.
Real estate investors are always looking for the next big thing. In the near future, that could be full neighborhoods with nothing but build-to-rent single-family homes.
Some investors report they’re earning returns that are 1%-2% higher than traditional single-family homes or multifamily rental properties.
Build-to-rent single-family home neighborhoods, often with more than 100 homes, are built from the ground up, feature many of the same amenities as new, high-end apartment complexes and are built specifically to be occupied by a renter. Typically, when people think of single-family rentals, they picture a portfolio of houses sprinkled throughout multiple neighborhoods…where some families rent and some own. When they think of multifamily rental communities it’s usually in the context of a large apartment building.
There are several factors fueling potential growth:
Millennials are driving growth. Many among this group of consumers are beginning to grow out of the apartment rental phase. Now with spouses and children, they would like to put down some roots. Yet home ownership can be an elusive dream as millennials carry the largest share of today’s record $1.6 trillion in student debt.
Build-to-rent single-family homes are often more appealing than traditional apartments to families of all ages. Many parents want a yard for their kids to play in and yearn for the stability of a traditional home and neighborhood. This desire for stability also makes families great renters because they are more likely to stay in a home longer and keep up on their payments regularly.
Access To Funding
Access to funding for build-to-rent single-family home neighborhoods is more accessible than ever. Agency debt through Fannie and Freddie can be obtained for as low as 3%. These programs are only offered for complete subdivisions made up entirely of single-family rental houses. Real estate investors and builders are actively seeking these loans, which is leading to more of these neighborhoods.
The low finance rates, high demand and stable rental rates all combine to help boost an investor’s return.
A Smooth Sale
A build-to-rent single-family home has more options for a faster exit strategy when compared to a traditional apartment building. The property can be sold to the tenant in a rent-to-buy scenario or sold to a traditional buyer. It can be sold to a publicly traded real estate investment trust or to another single-family rental home investor. An apartment building typically has one option…sell to another apartment building investor.
All of these factors make the build-to-rent single-family home and neighborhood a phenomenon likely to flourish in the next several years.
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About Beau Beach, MBA CCIM
Beau is a tenacious Commercial Real Estate Broker, author and adoring father of four. His clients appreciate his no-nonsense demeanor and his legendary work ethic.
Beau leads Beachwood which is a commercial real estate broker for sellers in the Nashville, Milwaukee and South Florida markets.
He’s the author of the books The 3 Reasons: Why Most Commercial Properties Don’t Sell and True Wealth: What Every Seller Should Know About 1031 Exchanges.
Beau can be reached at 800-721-3287, click to schedule a call or Beau@BeachwoodSells.com