Build-to-rent is established in the rental housing industry, but it’s still gaining its footing.
Build-to-rent (BTR) is having more than its 15 minutes of fame. The newer form of building and operating rental housing blends traditional multifamily methodology and single-family living. Typically offering residents more space—among other features—BTR has burst on the scene in recent years, allowing residents to experience something a bit different than a traditional garden-style or high-rise property.
Many companies that were not in the realm before, joined the sector swiftly to gain a foothold. Communities have popped up across the country, mainly in warmer-weather climates in and around the Sun Belt, and they continue to expand in size and unit count.
Attractiveness
According to RentCafe, there was a record of nearly 27,500 BTR homes completed in 2023, a 75% increase compared to 2022 and triple the data from 2021. There are now more than 45,400 BTR homes under construction. Pre-pandemic years (2016-19) hovered around the 6,500-home mark
per year.
The top three metros—Phoenix, Dallas and Atlanta—accounted for almost one-third of BTR homes added in 2023. The ability to build out rather than up like in many urban areas is among the reasons for the rapid expansion in the Valley of the Sun. Phoenix and Atlanta joined 12 other markets in the top 20, reaching a 10-year high in BTR completions. Columbus and Akron, Ohio, Indianapolis and Salt Lake City were among the markets in the top 20 outside the Sun Belt. At the state level, Texas had the most completions with 4,800 units, followed by Arizona at 4,000 and Florida with 2,800 units.
Phoenix, Dallas and Atlanta also led the way for most deliveries in the past five years with a combined 19,400 BTR homes, or about 30% of the 68,000 total. Phoenix is home to the most BTR homes under construction with nearly 7,300. Dallas and Houston followed with 6,500 and 4,800 homes, respectively. Huntsville, Ala., Charlotte, N.C., and Atlanta each had between 2,300-2,500 units under construction.
Meanwhile, Apartment List reports two-thirds of the housing stock in the U.S. is single-family homes, and 16.6% are rented. Citing the Census Bureau, there were 85,000 BTR single-family homes that started construction in 2023, which was a record 9% of all single-family starts. Unit size and family size are also larger in single-family rentals (SFRs)—2.8 bedrooms versus 1.6 bedrooms and 2.9 people versus two people. The 13% higher rental price on SFRs is offset with a 26% higher household income for single-family renters.
According to a trends insights report from Cushman & Wakefield, single-family rentals are outperforming traditionalmultifamily. “According to CoreLogic’s Single-Family Rent Index, rents are up by 3.4% over last April, the highest rate of growth since last spring. Contrast that with the overall multifamily rent growth of 1.5% year-over-year (YOY) in the first quarter, and it’s clear that fundamentals within single-family rentals are holding up better than traditional multifamily apartments.” CoreLogic also reports attached SFRs rents posted their first YOY decline (-0.6%) in 14 years compared to the nearly 3% YOY jump in February.
“Rising sale prices, large down payments and high interest rates are making homeownership more difficult for the average American,” says Patrick Burke, Senior Managing Director, Property Management with RangeWater Real Estate. “As a result, BTR communities are increasing in popularity with some of the characteristics of single-family homes typically not available in multifamily properties.” While still in the rental housing industry, BTR units are different—whether that’s in layout and design, management style or amenities offered—but resident experiences are still top of mind for rental housing professionals. Instead of offering a bark park, operators of BTR have the ability to fence-in backyards at individual homes, for example, or provide garages at homes versus carports, a parking garage or other designated parking area. Think of BTR and traditional multifamily like a cone of vanilla and chocolate swirl frozen yogurt: Each part is individually represented, but there is now the combined version that is something slightly different. “Build-to-rent housing represents a modern approach to rental living that prioritizes privacy, larger living areas, community, convenience and other benefits of newly constructed single-family home designs without the expense and long-term commitment of homeownership,” says Dana Dovell, Vice President with Kaplan Multifamily. “Often, BTR communities feature the amenities of multifamily with the benefits of single-family homes.”
At Kaplan, some of those unique approaches include private yards with irrigation and attached garages.
“For operators, BTR presents unique opportunities including the ability to achieve higher rents than market-rate apartments, employ centralized and shared staffing models, paced advertising spend in line with slower unit delivery and numerous other ways to drive additional revenue through other income,” says Laura Rodriguez, Senior Vice President – Operations with RKW Residential. “Renters will pay a premium for features such as [smart] doorbells, doggy doors, private grills, surround sound systems, retractable awnings, electric vehicle charging stations, larger individual lots and more.”
Testing the Market
It’s not a certainty that because one format works in one location it will work in another. How do companies know BTR is a sound investment, the right direction for the company and residents, and can the market sustain BTR homes?
RangeWater’s BTR communities represent several different renter demographics including older Millennials, empty nesters and blended families looking to downsize and prioritize space. “We continue to focus on delivering larger single-family homes and townhomes that will appeal to a markedly different renter than our apartments—one that has a larger household size and a demonstrated tendency to stay longer,” says Burke.
Dovell says Kaplan examines trends, housing demand, rental market dynamics, other real estate and retail locations, real estate data and employment centers as part of the decision-making process for community location.
“Markets with a growing population of young professionals, empty nesters and Millennials who prefer the flexibility and amenities offered by rental communities are likely to be well-suited for BTR projects,” says Dovell. “Markets with strong growth, diverse employment sectors, highly ranked school districts and a stable economy provide a solid foundation for rental housing developments. Additionally, factors such as affordability, housing supply constraints and regulatory environment can impact the attractiveness of BTR developments in each market.”
Burke says RangeWater searches for strong job and population growth markets as well as metros with pro-business political climates and a “superior quality of life.” These include Southeastern and Texas submarkets near RangeWater’s headquarters in Atlanta, its second-
largest office in Dallas and other locations with an undersupply of BTR homes like Charlotte, N.C., and Tampa, Fla.
Challenges
Some of the challenges between BTR and traditional multifamily mirror each other. Technology, for example, is one aspect that has impacted the industry in different ways.
“The technology stack initially designed for the conventional multifamily product is still in the development/
enhancement phases to adapt to the nuances of BTR communities,” says Rodriguez. “From an operational perspective, many BTR communities are smaller in unit count and lack the economies of scale for operational expenses that conventional multifamily communities provide.”
Other similar challenges include staffing shortages, community upkeep and finances. “Smaller communities have thinner pro formas, requiring creative staffing solutions and a heightened focus on centralization and shared services,” says Burke. “Because BTR is still a relatively new asset class, we have a tremendous opportunity to refine our best practices as the space evolves.”
Dovell says, “Managing a BTR community involves more than just leasing individual units. Managers need to oversee the maintenance of shared amenities, maintain private lawn areas, manage community events and services, and foster a sense of community among residents.” BTR also requires high upfront capital investments, which are impacted by the cost of land and labor.
Other impediments include economic downturns, a shift in renter/housing preferences, proximity to other single-family or rental housing communities and local zoning and regulations.
“Despite these challenges, the BTR sector continues to attract interest from developers and investors due to its potential for long-term income generation, portfolio diversification and alignment with shifting housing preferences,”
says Dovell.
Benefits
BTR gives residents a sneak peek at homeownership without the financial risk and responsibility of buying and maintaining their own homes. RangeWater has started the hybrid concept of BTR residences with Class A luxury apartments, resulting in properties with pools, fitness centers and outdoor amenity spaces. “One of the many benefits of this ‘hybrid’ concept is that pairing yields economies of scale and operational efficiencies across what is marketed as one mixed development,” says Burke. “From a financial perspective, these communities can each stand alone, affording benefits to residents and investors.”
Property Managers are also charged with maintaining the “neighborhood” feeling with events and get-togethers, says Burke. And residents come to expect the single-family living style of attached garages, back and front yards, and extra space for storage or an in-home office while still having the convenience and flexibility of renting. Among the potential amenities available at BTR but not necessarily featured at traditional multifamily communities include playgrounds, trails, athletic fields and smaller parks, says Rodriguez.
Residents of BTR often renew for multiple terms, resulting in less turnover, says Dovell. Among the many benefits for everyone involved in BTR are “stable income streams, tailored design and lifestyle amenities, long-term asset appreciation, professional property management, flexible living arrangements, location and accessibility,” says Dovell. “BTR developments provide a steady and predictable income stream for investors through rental payments. Unlike selling individual properties, which may result in fluctuating revenue, rental income from BTR communities can offer long-term stability and cash flow.”
Up Next
Expect to see upgrades and enhancements to the BTR sector just as there are to the traditional multifamily housing industry. This includes better technology integration and options along with pet services, energy efficiency and sustainability with appliances and green spaces, and proximity to entertainment zones and employment centers. “Not only is this good for the environment overall, but it also reduces utility costs for residents,” says Dovell.
Demand for BTR homes has been centered around the Sun Belt and major employment markets. Baby Boomers are searching for markets on the coast and in Florida, according to Rodriguez. “It’s indicative of their desire to downsize or retire somewhere with warm weather and a slower pace.
“The continued strong performance of the BTR communities we manage is proving that this was not a short-term
pandemic-era boom to accommodate renters who fled dense cities in 2020 and 2021. BTR is a lasting, durable rental product type.”
Michael Miller is NAA’s Managing Editor.