How Master Planning Can Benefit Your Build-to-Rent Investment

Top down aerial view of residential suburb

Build-to-rent investments have the potential for high returns in the current market due to Millennials reluctance to accrue a large amount of debt to purchase single-family homes, compared to their outbidding Gen X and Baby Boomers competition. The investors who couple the build-to-rent model with master planning characteristics may have the most success. Keep reading to learn how master planning can benefit your build-to-rent investment.

What Makes a Community a Master Planned Community?

Master-planned communities are typically large residential developments with mixed-use construction consisting of single-family homes and carefully curated amenities. The use of a community’s amenities is usually restricted to residents and may include parks, swimming pools, fitness centers, golf courses, and tennis courts.

Master-planned communities are typically constructed by a single developer with the goal of making residents feel as though they are living in a self-contained town. A common example of a master-planned community would be a retirement community.

Are Master Planned Communities Good Investments?

Master-planned communities have the potential to be a great long-term investment. The business model consists of the investor purchasing a large tract of land with the intention to build family homes and amenities, which will draw immense commercial interest into the area. A developer can control the neighborhood’s supply and demand for decades to come.

Walkway path through a park

What is a BTR Community?

A build-to-rent community, or “BTR Community”, is a term used to describe communities that typically consist of single-family homes developed for the specific purposes of being rentals. These characteristics distinguish BTR communities from the usual scenario where an investor will purchase and rehab an existing single-family home and then rent it out in a neighborhood where most homes are occupied by their owners.

Why is Build-to-Rent Popular?

There has been increasing interest in build-to-rent strategies among investors due to millennials’ reluctance or inability to purchase single-family homes. Past trends saw millennials renting primarily in urban areas due to high student loan debts. Now, these same millennials are ready to settle down and are looking to move to the suburbs and start families, but they continue to be plagued with the inability to purchase a home. The build-to-rent model offers this generation the ability to live in a single-family home outside of a city without having to be approved for a loan and accrue more debt. Because the foundational success of BTR is intended for broad appeal in the rental market, it aligns with prospective tenants looking for more affordable housing options in a family forward community. As long as amenities like shopping, parks, and dining and flexible rent is offered, BTR development will only grow in popularity.

What are the Benefits of Build-to-Rent?

There are numerous advantages for investors who choose the build-to-rent model:

Lower Maintenance

Investing in newly constructed homes will help investors avoid high maintenance costs. New construction will require less upkeep and keep maintenance costs low for investors, and low maintenance costs can improve an investors cash flow.

High Demand

As discussed above, the housing market is seeing an influx of millennials who are moving out of urban areas and looking to rent in the suburbs. Investors should have no issue finding tenants for newly-built single-family homes, and trends predict an uptick in build-to-rent developments across the country. There is a lack of availability for buyers seeking single-family homes across the country. This lack of options, coupled with the rising resale price of single-family homes is enough to keep individuals from purchasing in the current market.

Low-Risk Returns

Residential real estate is a great investment and is one of the most stable investments with some of the highest projected returns. CNBC reported that because “…the rents for single-family homes are growing fast at 4.5% annually now compared with 3% rent growth for multifamily apartments,” resulting in “much less turnover in single-family rentals, and the rental market is much less volatile than the home sales market.”

Lower Tenant Turnover

Developing a community of single-family homes in a suburban area is likely to attract younger couples with children who are seeking stability as well as flexibility because “while the huge millennial generation is aging into marriage and parenthood, not all of them want nor can they afford to buy a home”. Families are less likely to rent for a single term and could be long-term tenants who have more respect for the space. With higher dual income households associated with these family renter profiles and renters themselves in need of additional amenities not found in apartment living, single-family rental homes seem like a perfect fit for both renters and investors.

Unfinished house under construction

Why Should Investors Build to Rent?

BTR investing may have a big return, but it’s the long-term benefits that shine end-to-end including high quality tenancy and minimal maintenance.

Minimal Operations

With a BTR community, the only periodic expense that the landlord is responsible for is essentially the landscaping. These types of investments are practically immune to the typical repairs and maintenance compared to apartment units. Tenants get extra bedrooms with a single-family home rental and a community at a comparable rate as a one-bedroom apartment with pools and tennis courts. Due to the cultural shift away from homeownership, investors should expect a healthy growth spurt in BTR class communities and be advised to get ahead of future developments.

Maximum Growth

If an investor buys a large piece of land intended for building family homes and adding amenities, it unlocks commercial growth opportunities for future developers. More living space and occupancy is an investor invitation to businesses like restaurants, shops, and entertainment to follow. By setting the expectation for BTR community development, investors can carefully control the supply and demand of the neighborhood as needed. By building in continuous tracts, and bulk-sold in a central location, it simplifies the property management side of things and is far less expensive than individual rentals.

How do you Maximize Rental Income?

To maximize rental income investors should first find a viable market for their property type by doing some market research and determining the price to rent ratio. If an investor is considering a build-to-rent strategy, they may consider doing so in conjunction with a master planning community to draw renters and big commercial tenants. And as always, investors should aim to keep their costs low to see the highest returns.

When it is time to finance your next development project, contact Broadmark Realty Capital for help from the experts.

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