5 Drivers of Build-to-Rent Real Estate Demand

Many BTR homes are generally developed as part of managed communities and tailored to meet the needs of long-term renters and often feature modern amenities such as fitness centers, pools, playgrounds, and dog parks. Compared to typical homeownership, BTR communities typically emphasize convenience, offering professional maintenance services and flexible lease terms, generally making them attractive to individuals and families who prefer renting over homeownership.

The appeal of BTR is growing, which can partly be attributed to the elevated interest rates on mortgages, along with the estimated national shortage of ~3.9 million units, most of which is attributed to the under supply of single-family properties. With approximately 350,000 BTR units nationwide, 143,000 of which were built in 2022-23, the inventory remains relatively small but projections indicate that the inventory could grow by 50% in the near term.1

Deciding whether to rent or purchase a home is a major financial and lifestyle choice that depends on multiple factors, including budget, stability, and personal goals. BTR may bridge the gap for individuals and families by providing several benefits compared to homeownership.

• Upfront Costs

Renting generally requires less of an initial financial commitment than purchasing a home. Typically, renters are required to pay a security deposit, the first month's rent, and, in some cases, renters' insurance (some communities may also require last month's rent, although this is less common). Purchasing a home typically requires a down payment, generally ranging between 5-20% of the total purchase price, closing costs, home inspections, appraisal fees, and other potential associated fees.

• Repair or Maintenance Responsibility

Many would consider one of the advantages to renting versus owning a home is not having the responsibility for most of the repairs and maintenance as they are generally handled by the landlord or professional property managers. By eliminating some of the unexpected costs and inconveniences related to exterior upkeep, appliance repairs, pest control, landscaping, and more, BTR renters can enjoy the lifestyle of homeownership without some of the costs associated with typical homeownership. This maintenance-free living may appeal to many renters, whether busy professionals or families.

• Monthly Costs

In Q2 2024, the average monthly mortgage payment for a newly purchased home was 52%1 higher than the average monthly rent, not including additional home ownership costs like insurance, taxes, and maintenance. This monthly cost differential may continue to appeal to residents seeking a practical alternative offering characteristics of both renting and homeownership and may find it in BTR properties.

BTR renters may avoid fluctuations in the costs of property taxes, or unexpected maintenance costs, and with rental leases typically a year in length or longer, there is an opportunity for a predictable monthly budget. In situations where owners have variable interest rates, homeownership, comparatively, may carry the risk of increased mortgage costs. It can also bear unforeseen repairs and costs associated with maintenance. Generally speaking, the predictable monthly costs associated with renting may allow renters to plan for savings, investments, or discretionary spending with greater confidence.

• Flexibility to Move

Renting, compared to typical homeownership, may provide renters with greater adaptability to changing circumstances. Life circumstances '“ job situations, family needs, or even personal preferences '“ can change quickly, and renters may have more flexibility to adapt to those situations. Breaking a rental lease early, while it can still involve fees, is often a simpler and less costly process than preparing, listing, and selling a home.

• Modern Community Amenities

BTR communities are typically designed to provide tenants with features that are not often found with homeownership. Community amenities, such as fitness centers, pools, playgrounds, dog parks, and even coworking spaces are designed to meet modern living needs and create an elevated living experience. These shared amenities support convenience and the overall rental experience, often making BTR communities an appealing alternative to traditional homeownership.

BTR communities may offer a level of affordability, flexibility, and convenience that can make them an appealing option for those seeking quality housing without some of the costs and responsibilities of homeownership. With generally lower upfront costs, fewer maintenance concerns, and flexibility of shorter lease terms, BTR provides what many would consider a modern, generally hassle-free living experience.

While BTR communities offer many advantages, there are important downsides that renters may want to consider. First, renters may be subject to regulations set by the property management company, such as limiting their ability to personalize interiors or exteriors of the units—such as painting, making modifications, or landscaping—and imposing community rules, often with penalties for non-compliance. Second, monthly rent payments do not build equity as mortgage payments typically do for homeowners, leaving renters without a financial return on their housing costs. Additionally, short lease terms, typically one year, may expose renters to the risks of annual rent increases and potential non-renewal by landlords, creating what many consider as less stability compared to homeownership.

1 https://www.cbre.com/insights/reports/build-to-rent-overview2https://www.realtor.com/marketing/resources/build-to-rent/