In recent years, Build for Rent (“BFR”) has been one of the fastest growing asset classes of the US housing market due to high rental demand, large influx of capital and exceptional business performance. In fact, according to Green Street, the expected risk-adjusted annual return for Build for Rent investments in the private market is the highest of 18 property sectors tracked by the firm. (Parker, 2021).CoreVest has been at the forefront of this BFR boom, having closed approximately $1.5 billion in loans on 10,000 BFR units. To help investors explore the key aspects of BFR that make it a viable, scalable, and potentially rewarding opportunity, we present this Complete Guide to Build for Rent Investing below. If you would like to download the PDF version instead, click here"Building and Renting Single-family Homes is Top-Performing Investment."– The Wall Street Journal, November 2021
What is Build for Rent?BFR Property TypesWhy Invest in Build for Rent?How to Develop BFR CommunitiesPros and Cons of Build for RentBFR Developer TestimonialsBuild for Rent TrendsHow CoreVest Helps DevelopersBuild For Rent Loan ProductReferencesMany different strategies and terminologies exist under the same category that we collectively refer to as BFR Investing. For example, some developers have the infrastructure to build rental properties from the ground up (also known as Build to Rent, BTR or B2R) while others need to form partnerships with builders to purchase newly finished homes for rent (sometimes referred to as Buy to Rent). Both scenarios are considered Build for Rent Investing in this guide.BFR properties are designed for the purpose of renting to long-term tenants who generally enjoy living comfortably without the hassles and costs of home ownership. As such, BFR properties typically offer elevated features and amenities while incorporating materials that can withstand long-term wear and tear. The chart below highlights some of the common amenities that are often found in BFR properties.Top Home Amenities1. Laminate or tile flooring2. Walk-in closet, dual vanities3. Stainless steel appliances4. Kitchen island, granite counters5. Dedicated parking6. Backyard patio7. Washer and dryer includedTop Community Amenities1. Pool and Spa2. Clubhouse3. Walking trail4. Park, playground, picnic area5. Fitness center6. Gated entrance7. Barbecue areaAlthough each community is different, Build for Rent can be divided into the following broad categories.
Photos of BFR Properties at Cooper Crest, courtesy of Cor3 CapitalInvestors choose to obtain BFR asset exposure in different ways: some build projects, others acquire projects. CoreVest closed a $40 million credit line for a client who is acquiring townhomes from a builder at certificate of occupancy. This strategy allows our client to acquire and lease brand new townhomes without taking on construction risk. The townhomes are located within four distinct BFR communities in multiple cities throughout Texas.Higher Demand, Higher ReturnsAccording to the US Census Bureau, more than 37% of Americans are now renters. In 2021, rental occupancy rates rose to nearly 94%. Experts believe this upward trend will continue post-COVID-19 and into the foreseeable future. A recent article in the New York Post states that US rent prices are the highest they have been in decades, and they aren’t coming down. (Zilber, 2022) In addition, BFR communities have the benefit of attracting specific demographics such as millennials. The Census estimates that 65% of Americans under the age of 35 are currently renting.With very little new single-family rental inventory introduced into the market since the Great Recession (2008), many developers along with institutional capital partners are rushing to introduce new BFR projects. Not only are they filling a much-needed void, but they are also making more money as they do so. Green Street states that while the weighted average for all property sectors was 6.1%, the expected risk-adjusted annual return for Build for Rent investments was about 8% on average, almost a third higher. (Parker, 2021)
In addition to higher demand and higher returns, what are the factors that continue to drive the growth of BFR?1. Changing DemographicsRecord housing prices, uncertainty of markets, the desire to explore, and the ability to work remotely have put home ownership out of reach for some and out of interest for others.2. Availability of FinancingBuild for Rent financing is no longer limited to the largest developers. Investment lenders like CoreVest now offer more investors access to capital for a variety of creative BFR projects.3. Low SaturationEven with increasing interest, BFR investing still has ample room for growth in most markets. US housing is significantly under supplied and new builds are especially welcome.4. More Exit StrategiesWhile some asset classes, such as commercial, are sold to investors of that asset class, BFR properties can be sold to a new home buyer, the existing tenant, or another investor, etc.Developers can maximize desirability as well as longevity with the proper planning of a BFR community. WAN Bridge Group, a large BFR developer and client of CoreVest, shares the following preparation tips and general steps to complete a BFR development:
1. Design with tenants in mindDesign homes that will appeal to tenants, incorporating thoughtful elements such as spacious floorplans and upgraded finishes to stand apart from typical rentals.2. Consider different home sizesProvide a range of home sizes and price points within a community to satisfy a broad range of tenant needs.3. Identify unique benefits and amenitiesPlan communities that offer unique amenities, including playgrounds, parks, walking trails, waterfront access, and other exclusive benefits for residents to enjoy.4. Location, location, locationPinpoint specific regions/cities in which there is high demand for BFR homes to ensure optimal capacity.5. Line up the right partners.Work closely with building and supply partners to secure the best-possible construction costs so that savings can be passed along to tenants.
1. Select a target areaUse real estate data that breaks down demand in a region, current rental options, and other key information to select your location.2. Acquire the landIn some cases, this occurs through a partnership with the landowner (a financial arrangement may be made in which the landowner receives a portion of the profits).3. Finalize partnerships Once land is acquired, it is important to finalize contracts with investors, builders, and other entities.4. Design and construct the homesRemember to fully include community amenities, landscaping, and other key features in your design, timeline and budget.5. Market the BFR homes for rentThis is an exciting stage in the development process. Marketing can be done directly by the developer or through a leasing company.6. Consider professional managementAllowing a professional property management team to handle ongoing community needs and maintenance ensures that your investment will be well cared for.Photos of BFR Properties at Clublands of Antioch, courtesy of Moda HomesCoreVest closed a $29,960,000 bridge loan to finance the development of 110 Build-For-Rent single family homes in Lake Country, IL. The homes will be built in an established master-planned community, including amenities such as a clubhouse, fitness center, pool, and picnic area. Each property will feature granite countertops, stainless-steel appliances, in-unit washers/dryers and wood floors. Located in a market that has seen positive annual rent growth, this development will help to satisfy the rapidly growing demand for single-family rentals.While Build for Rent may have growing appeal, investors should also carefully evaluate the pros and cons of this strategy.
1. Higher RentsBFR units typically offer similar amenities and conveniences to that of multifamily apartments along with the privacy of single-family homes. As such, they can command higher rents than both asset classes.2. Less Tenant TurnoverWhile large, traditional apartment complexes tend to appeal to more temporary renters, BFR properties appeal to those who want additional customization and are prone to staying longer.3. Less CompetitionScarcity of inventory has driven up prices on homes and has led to fierce bidding wars on the market. By adding their own inventory, developers can avoid competition in the acquisition stage.4. Ideal BuildEach market may have an “ideal” house build that best meets demand. While it is very difficult to find a pool of existing ideal homes, building them ensures that those specs are met.
1. Limited AvailabilityBuildable, viable land is just as scarce or even more scarce to acquire than homes. Each market will have varying levels of availability, but top markets will certainly be very limited.2. Hard to CompeteSmaller developers have to contend with much larger ones in a market. Experience, partnerships, and economies of scale tend to work in favor of the larger companies with deeper connections.3. More ExpensiveBecause of the scale of the development, BFR is more expensive upfront than single fix and flips, for example, where investors can deploy capital one property at a time.4. No Instant ROIWhile newer homes typically net higher rents and future appreciation, it is not the same as finding instant, lucrative returns on a discounted property for renovation.As a growing asset class, Build for Rent continues to evolve. Below are the top 5 trends that members of our team currently see in the BFR marketplace:1. Land Costs Continues to RiseOne of the biggest pain points for developers is increasing land cost. It’s becoming extremely difficult to find affordable lots as new players continue to enter the market. The resulting increase in competition for land is pushing developers into new markets that were previously not considered. – Brandon Turk2. Bigger is BetterBigger is indeed better. There is substantial demand for 4- and 5- bedroom houses with an average premium of $150-$200/month per bedroom. If it is possible to build an extra bedroom within the same home footprint, investors should strongly consider it. They should also embrace technology as there is a premium for smart homes. – Boris Zhuravel3. More Means LessAs many new SFR/BFR funds launch into the space, cap rate compression is deepened because investors are betting that they can continue to raise rents in the future. – Joakim Mortensen4. Some Like to Mix It UpThere is increased interest in building multiple asset types in the same transaction. For instance, borrowers would discuss a mixture of townhomes and SFRs, or even garden style apartments and townhomes being built in one community. Some would consider selling one asset class upon completion, others would look to hold all development. – Brendan Hamilton5. Pricing Over LeverageA lot of developers are less concerned about the amount of leverage and more focused on the rates. There seems to be a lot of money in the market, with many developers having moved a decent amount of their capital from stocks and other holdings into real estate. So, to these developers, it’s about the total return and not the rate of return since leverage amount has a greater impact on rate of return than coupon. – Stefan MalmundAs a leading lender in the Build for Rent space, CoreVest has worked closely with developers to finance numerous BFR projects, totaling 10,000 units. Listed below are ways that CoreVest can help BFR developers grow:1. We can lend on multiple BFR projectsThis includes horizontal multifamily, townhome, detached SFR, or a combination of all of these.2. We are not limited to single tax lot investmentsThis offers more flexibility during the development stage as well as for sale and/or permanent financing where other lenders may have limitations on multiple lot developments3. We don't have rigid lending boxesWe base our credit decisions on product quality, market demographics, and developer experience.4. We are a true lifecycle lenderWe're able to finance at all stages of the project, whether it’s construction, bridge or permanent financing. Our unique model provides us the flexibility to jump in at any stage of a given project and finance it.5. We are able to close BFR transactions in 30-45 daysOur in-house loan administration team ensures that we have visibility into the project at all times, allowing us to process draw requests efficiently and react quickly to keep the project on track.6. There are no prepayment penaltiesAvoiding prepayment penalties allows borrowers to consider many different BFR exit strategies.7. Our loans can be non-recourseWe have the flexibility to provide accretive non-recourse financing at multiple leverage points, depending on need.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, Will. 2021. “Building and Renting Single-Family Homes Is Top-Performing Investment.” The Wall Street Journal. November 9, 2021. https://www.wsj.com/articles/building-and-renting-single-family-homes-is-top-performing-investment-11636453800Zilber, Ariel. 2022. “US rent prices highest in decades — and they aren’t coming down: data.” New York Post. February 1, 2022. https://nypost.com/2022/02/01/us-rent-prices-highest-in-decades-and-theyre-not-coming-down-data-shows/Wan Bridge. 2022. “A Complete Guide on Build-to-Rent Homes.” Wanbridge.com. Accessed February 21, 2022. https://wanbridge.com/educate/build-to-rent-homes-guide/
