[REN #823] Single Family Rentals: Build-to-Rent Market

Real Estate News for Investors Podcast Episode #823

Single-family build-to-rent homes are becoming more common. With a sustained demand for rentals and a lack of housing in many markets, many builders are choosing to build homes designed as rentals. So what’s the market look like for build-to-rent homes? And where is that market headed in the coming years?

The National Association of Home Builders recently published a report that compares build-to-rent single-family homes to new for-sale homes. (1) It’s not a huge part of the new construction market, but it’s significant. From the second quarter of 2018 to the second quarter of this year, about 5% of single-family construction was dedicated to new rental homes. That’s about 42,000 homes or one out of every 20 new homes.

Build-to-Rent vs. New For-Sale Homes

According to the NAHB, the rate of construction has remained consistent over the last year or so, while other forms of residential construction have tapered off. If you look at a graph from 1990 to the current year, you’ll see an overall increase in the number of build-to-rent homes. (2) There were several spikes in the midst of the housing crisis and the subsequent recovery as foreclosures turned many people into renters. But the graph is still headed in an upward direction to this day.

The NAHB says that some five-million single-family homes were added to the rental universe since the Great Recession began. Most are older homes that have been turned into rentals, and that continues to be the primary source for single-family units. But the NAHB expects the share of build-to-rent homes to grow in the years to come. And, they are much different than for-sale homes.

Build-to-Rent Characteristics

The NAHB used Census data to come up with a list of build-to-rent characteristics.A partial list of those characteristics includes: 

  1. Rental homes that are usually smaller with fewer bedrooms, and smaller lots.
    The median square footage in 2016 was 1,500 square feet. That’s much less than the median for new for-sale homes which is more like 2,400 square feet. They also often have just one or two bedrooms and just one full bathroom. As for lot size, the median for a build-to-rent is 6,200 square feet compared to 8,500 square feet for new for-sale homes.
  2. New rental homes are often, but not always built as townhomes which are single-family attached homes.
  3. Building design often consists of wood frames and vinyl siding.
  4. And, a one-car garage or no garage at all are common.

Distribution of Build-to-Rent Homes

The analysis includes many more details on the differences along with a map of the U.S. showing their distribution. The Census data shows that the areas with the highest number of build-to-rents are the West South Central states of Texas, Oklahoma, Louisiana, and Arkansas. East South Central states have the second largest share, followed by West North Central States, and the South Atlantic.

If you look at the percentage of new rental homes, the East South Central has the highest share. New England is second in that regard.

Price Comparison

There’s also a big difference in price between build-to-rent homes and new for-sale homes. The NAHB report shows that 2016 median permit value for the rentals was $175,000 compared to $211,000 for new for-sale homes.

It found that 40% of the build-to-rent homes had a permit value less than $150,000 while about 25% of new for-sale homes were at that price point. One surprising statistic shows that build-to-rent homes with a permit value of $300,000 or more accounted for 35% of the homes. That’s larger than the 25% share of higher value new for-sale homes.

Demand for Build-to-Rent Homes

According to Builder Online, demand will grow for these kinds of rentals because of the housing affordability crisis and the lack of homes on the market for those who can buy. (3) But there are also other characteristics of the build-to-rent home that could drive demand. As the NMHC said in an article that this kind of horizontal multi-family neighborhood lifestyle “is what people today either want as their preferred housing type, or want as their weigh-station to homeownership.” Data from the National Multifamily Housing Council shows that 15 million households or 35% of all renter households are living in single-family homes instead of apartments. 

These statistics are a tribute to the need for single-family rental housing, whether it’s a turn-key existing rental home or a newly built rental home. 

We’ve invited new home builders from Texas and Florida to join us at our upcoming event on December 7th in San Mateo and December 8 in Los Angelos near LAX. If you’d like to learn more about acquiring brand new single family rentals in Dallas, Houston, Orlando, Tampa or Jacksonville, come join us. It’s free. Sign up at realwealthnetwork.com

You’ll also meet property managers from those states. And I’ll be giving my 2019 Year End Wrap up — a time when we look at my new year predictions and see if I came close. Plus I’ll give some great stats on where the markets are headed in the 2020’s.

If you want to learn more about the single-family rental industry along with data on the most landlord-friendly areas with the strongest cash flow and potential for growth, visit newsforinvestors.com and click on the invest tab.

Links:

(1) Eye on Housing Article

(2) Eye on Housing Article 2

(3) Builder Online Article

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