Driving around new suburban developments, or even more mature neighborhoods, it becomes obvious that something different is going on here. Instead of the usual FOR SALE signs in the front yard of these homes, FOR RENT signs have taken their place. This increase in the number of single-family residences that are for rent instead of sale has occurred for a variety of reasons including the greatest disruption in the past 100 years, the COVID pandemic. After working, playing and spending most of the hours in a day at home, that space has taken on new importance.
Experts in homebuilding and investing believe this change in residential real estate is not a temporary trend or one that is based on homeowners outgrowing what might be a “starter” home. Rather, it seems to be an intentional, strategic move as big players in residential construction are now “building-to-rent.”
What makes a good rental property, for both owners and renters? Durability, low maintenance and energy-efficiency are all important. Click here to learn how brick construction checks all these boxes.
Rapid Growth of New Rental Properties
The residential construction experts at Acme Brick have pretty much seen it all. The company, founded more than 130 years ago, has seen its hard-fired, clay brick surround hundreds of thousands of homes.
“Our customers, the residential builders who serve homebuyers, are well-aware of the benefits of brick construction for better energy efficiency, lower maintenance costs and better ROI when it’s time to sell,” said Britt Stokes of Acme Brick. “That calculus still works for those, usually younger buyers, who are starting families and choose to rent, rather than buy.”
According to the residential real estate service, RentCafe, the trend toward renting is growing exponentially. “As renters look for a lifestyle change that offers more space and privacy, communities of single-family houses built for the purpose of renting have become the hottest trend in housing. 2021 was a record year for single-family rental home construction, with 6,740 new built-to-rent homes completed. And the trend is growing rapidly: twice as many homes are now under construction, for a total of nearly 14,000 set to open their doors to renters beginning this year.
“Single-family rentals are not a new concept. Although they proliferated in the aftermath of the 2008 housing crisis, this time it’s different. The pandemic created an unprecedented demand among renters for space and privacy, which houses can address much better than apartments.”
The sheer numbers associated with built-to-rent are impressive.
RentCafe notes, “In 2021, 6,740 new rental homes in built-to-rent communities were completed — the highest yearly total to date, according to Yardi Matrix data. But this is just the beginning of a trend we’re bound to see much more of as the pace of construction is set to double beginning this year (2022). Specifically, there are an estimated 14,000 built-to-rent homes under construction in the United States.”
One of the hottest built-to-rent areas in the U.S. is the Dallas and Fort Worth “metroplex.” Located in the northern sector of the area is Collin County where Plano-based Green Brick Partners Inc. bought 427 acres near the city of McKinney to develop a residential community called “Windmore,” according to the Dallas Morning News.
“The community will include up to 1,762 single-family homes for sale, 225 single-family homes for rent, parks and about 4 acres of commercial property. Windmore will be one of Green Brick’s first communities with a single-family rental component.”
What’s Driving This Trend?
The concept of building rental properties has been around for a long time. “For example, small multifamily properties like duplexes and triplexes often have one unit rented out, while larger apartment buildings have always been developed for rentals,” according to this overview.
“Real estate investors know that the demand for good rental property is growing by leaps and bounds in many markets across the U.S. As the U.S. Census Bureau reports in 2021, homeownership across the country is steadily declining, causing rental vacancy rates to go down and median asking rents to rise, even in the middle of the current recession.
“Astute real estate investors and developers are seizing the opportunity created by housing shortages and demographic shifts to fill the growing demand for build-to-rent single-family homes.”
The demographic that is driving this trend is young families with children. As these families move to suburban communities in search of superior schools for their children and a better quality of life in general, they want a home of their own. Unfortunately, several factors make this difficult. As this Roofstock article notes, “Large levels of student debt combined with high housing prices can sometimes put homeownership out of reach. So, instead of trying to buy a house, an alternative option is to rent a single-family home instead.”
Capital is also a driver of this type of investment for both developers and individuals. Roofstock notes “One of the great things about investing in real estate in the U.S. is that financing for single-family rental property isn’t limited to the big players. Smaller developers and real estate investors are also aggressively seeking loans for build-to-rent housing. As a result, more rental communities are being created to meet the growing demand for single-family homes for rent.
“In many markets, the rent for a bigger house is often higher than a smaller apartment with the same number of bedrooms. However, when renters compare the cost per square foot versus the apartment, they usually see more value in having storage, a garage, and a yard where they can safely socialize and are typically willing to pay more in rent.”
A Checklist for Build-To-Rent Property for Investors and Renters
Large developers, individual real estate investors and the renters who want the lifestyle that a single-family home offers have at least one thing in common. Numbers must be crunched before building or signing a lease.
For developers and individual investors, there are several important considerations before building a rental property
- Is the location of the lot in an area where family amenities (swimming pools, hiking trails, parks, convenient commuting access, shopping and other factors) are easily accessible
- What about schools? Is the proposed rental property in a well-regarded school district?
- Is the property’s landscaping conducive to low maintenance upkeep?
- Will the home be energy-efficient?
- What about building codes? Is the proposed area zoned for rental properties?
- Will the home be designed for multiple generations living together?
- Will the appliances, HVAC, plumbing and electrical be durable enough to withstand wear-and-tear?
- Is the construction budget adequate to allow for low maintenance building materials such as brick or metal siding rather than fiber cement siding that must be repainted regularly?
For renters, here are some questions to ask before signing a lease
- Is the location of the home convenient for you and your family as far as recreation, shopping, commute to work and other family-friendly factors?
- How are the schools rated? Check such factors as students-to-teacher-ratio, extra-curricular activities and graduation rates.
- Is the home energy efficient? This involves adequate insulation, windows and doors that are sealed, reasonably new HVAC, and appliances that are adequately rated by services such as Energy Star. Ask to see the average monthly electrical and natural gas costs.
- Does the home have the type of flooring that will stand up to family traffic?
- Is the tenant or the landlord responsible for maintaining the yard?
For investors who are considering the build-to-rent sector of real estate, the factors seem to be positively aligned at the present time - financing availability and strong demand from young families. The challenge is always the same: How to build smart?
For renters, the quality of life in a single-family home is certainly superior to that found in apartments. However, the responsibilities of maintenance and the lack of equity that comes with owning a home are also considerations.
For both groups, awareness of the risks and rewards is critical.
Building a rental property or renting a single-family home can be exciting and rewarding. For options on building and renting smarter, click here and talk to the construction experts at Acme Brick.