Build-for-Rent is Booming

The U.S. housing market is seeing a boom in the development of build-for-rent (BFR) homes. For investors, BFR homes, for the time being, are able to strike a delicate balance between supply (or lack thereof for-sale inventory, otherwise known as “SFR” – single-family rental, BFR’s sister industry) and dramatically increasing cost to acquire homes. 

For renters, many crave the comfort of a larger home but are currently held back from purchasing one due to the current price inflation, student loans, etc. If they can’t buy, renting a single-family home seems to be the next best thing.

Why Build-for-Rent Homes?

With renters looking for the amenities of a home, they are more likely to be willing to pay a higher monthly rents over multifamily inventory.  Likewise, the pandemic has caused many to rethink the close quarters that are a natural aspect of the multifamily living format.

One of the primary reasons the BFR movement is so hot right now is that capital is flowing at an unprecedented rate into what has normally been seen as a “sub institutional” investment class…or worse (mom & pop investing).  Investors are investing billions of dollars into BFR housing with no end in sight as they seek high barrier, non-disrupted space alongside an overcrowded, low cap rate environment in multifamily investments.

Furthermore, developers are only getting smarter.  Some are expanding into building entire BFR communities that are using a similar model to the multifamily space, with property and leasing managers, shared amenities and lower maintenance costs and scaling all of it on a multi-region, if not national basis.

Outside of the typical risk profile of any real estate development), one of the biggest downsides to BFR (and SFR) has been the sheer lack of experienced professionals capable of running these businesses at any scale, whatsoever.

This has long been the domain of local, “mom & pops,” many of which are quite successful, but not scalable.  For national investors to have the accretive return to outweigh the particular capital investment and risk profile of BFR, scale is the only way to combat the downside risk and seek appropriate IRR.  This is further exacerbated by the inefficiency of property management for BFR/SFR compared to the same dollar spent for a multifamily management professional (I will write at length in a future edition regarding ways to devise economies of scale in single family rental management).

Have you weighed the pros and cons of BFR in addition to leasing, managing and maintaining it?  What about scaling your platform through more efficient acquisitions and construction?  If you decide it’s a worthy investment, we’d love to discuss a synopsis of the competitive marketplace of BFR and SFR companies and leadership (in addition to alternative industries that offer plug-and-play talent options) to drive your emerging or growing single family rental platform.

Let’s talk.