Investors are pouring money into building rental homes at a record rate – what’s causing the frenzy?

Investors are building single-family rental properties at an unprecedented pace to meet the needs of a growing number of renters seeking more space without having to commit to buying a home or be constrained by the budget constraints of a hefty mortgage. A record 27,500 rental homes will be completed in 2023, nearly three times the number completed two years ago, according to an analysis of Yardi Matrix data. Cafe for rent.

Starter homes are in short supply. In many areas of the country, there are few entry-level homes below the area’s median home price. Even if these smaller, modest homes are on the market, they may be out of reach for the average family due to high home prices and high mortgage rates.

First time home buyers have come up with Several solutions Affordability crises, including Buying a house with friends and Live with parents to save on down payment. Some people are also content with reducing square footage and sharing walls, which has led to a boom in new homes construction Townhouse or use burglary An investment strategy to offset the costs of your mortgage.

But for other Millennials, finding a single-family home with enough bedrooms and a backyard in a neighborhood with good schools remains a priority — even if it means they must Rent a house there. There’s some left teleworker People who prefer the amenities of a single-family home will choose to rent because of the freedom it offers. As a result, demand for single-family rental housing has generated interest from institutional investors and driven a significant increase in rental housing construction.

More rentals coming soon

Build-to-rent housing completions have increased rapidly since 2020, when there were only about 7,700 single-family rental homes completed. This trend will continue in the coming years as more than 45,400 rental properties Currently under construction, most will be available for leasing in 2025. RentCafe expects new rental property construction to slow in coming yearsHowever.

In some cases, investors build single-family rental homes within the community have Mix of tenants and owners. But construction of single-family rental communities has also increased. of these plans Build-to-rent communities is a community of single-family homes that sometimes includes Multifamily The same goes for unitsall of Which Share a common property manager and may have community amenities such as outdoor space and fitness centers.

Build-to-rent homes are attracting interest from renters who not only want more space but also the latest home features. About 41% of the country’s self-build rental homes were built in the past five years. Build-to-rent communities have similar appeal to new-build for-sale developments, but typically require lower housing payments and allow tenants the freedom to continue living there without the hassle of selling.

Investors and developers note growing demand in these communities, as well as institutional investment in the asset class ready for growthaccording to a report cushman and wakefield. For examplein the past few yearsthe black stone has been poured Over $9.5 billion Put cash into investing in single-family rental properties.

Metro areas with the most build-to-rent activity

exist 14 of 20 major metro areas building rental housingNumber of completed units hits 10-year high.

In 2023, Phoenix became a hotbed of build-to-rent activity, with more than 4,000 units completed. New rental properties increased by 164% year-on-year. this Urban populations are growing and there is ample land for expansionaccording to Cafe for rent. in some High demand coastal citiesLimited development space has hindered the growth of the build-to-rent movement.

Nearly 2,700 homes for rent in Dallas finished Atlanta follows in 2023 almost 2,000 units completed on a build-to-rent basis. These three cities also have the highest number of rental homes completed in the past five years, with the supply of single-family rental properties increasing rapidly when Compared to 2018. For example, have As of 2018, there are only about 500 apartments available for rent in Atlanta. By 2023, this number will increase to more than 4,000.

The top five states for the number of rental homes completed in 2023 are all in the Sun Belt:

• Texas: 4,800 units
• Arizona: 4,000 units
• Florida: 2,800 units
• Georgia: 2,181 units
• South Carolina: 1,909 units

Build-to-rent housing in Texas Particularly popularNew construction in cities like Dallas, Houston and Austin will only add to the already sizable supply in the coming years. and in New rental construction is booming in Florida something different subway.

RentCafe also identified other top markets with the highest number of rental buildings under construction. At least 1,000 new rental homes are currently under construction in these metro areas and expected to be available to tenants by 2026:

Invest in building and renting housing

The current demand for single-family rental homes with modern amenities makes building rental homes an attractive investment Opportunities provided Opportunities for stable cash flow. There are several options for entering the game, some with more obstacles than others:

• Building a Single Family Rental: One option is to buy a piece of land in a growing area and build a perfect rental house. In some ways, this may be easier than finding a turnkey project Rental housing in a tight market. But unless you can cover construction costs with cash reserves, you’ll face unique challenges. approval procedure new construction loan Usually more stringent and you may have to pay a higher interest rate bigger Closing costs compared to traditional mortgages.
• Develop rental communities: If you have extensive development experience and sufficient funds, you can find success Build-to-rent developments on your own or with a general partner team.
• Join a private equity fund: Some private equity funds target build-to-rent investments. The minimum investment can be high. Some opportunities may be available only to accredited investors.
• Enter real estate crowdfunding: Some Real estate crowdfunding platformlike Crowd Street and arbor crowd, which allows people to invest in build-to-rent funds or fractional shares in projects. Some platforms are only open to accredited investors. this Fundrise Flagship Fundwhich includes a portfolio of 4,700 single-family rental properties in 29 markets, is open to investors with investments as low as $10.
• Invest in REITs: Some private and publicly traded real estate investment trusts (REIT) focus About build-to-rent investment. Minimum investment amounts vary.

bottom line

A record number of rental units will be completed in 2023. developers and investors It seems Meeting high demand for single-family rentals affim part of the populationincluding millennials who are priced out of home ownership and those who choose a nomadic lifestyle. Build-to-rent activity is booming in Texas, Arizona and Florida, but most metro areas saw completions last year hit a decade high.

Investors have several opportunities to profit from the success of the industry, including active and passive investment options.

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Notes on BiggerPockets: These are the opinions written by the author and do not necessarily represent the views of BiggerPockets.