6 Reasons Smart Investors Use Build-to-Rent Financing to Build Their Real Estate Portfolios
To many, build-to-rent financing may be the secret to reviving struggling economies in the wake of housing market declines.
While that may be true – and is certainly a worthwhile reason to leverage this kind of lending – there are six reasons these loans are also great for building up your rental property portfolio.
1. The Need for Entry-Level Housing
As we touched on earlier, one of the reasons many investors are turning to build-to-rent loans is because. In many markets, there’s almost a complete absence of entry-level housing options.
So, in effect, people are unable to find affordable housing because all of the existing properties are simply out of their price range.
It’s a major problem, but one that build-to-rent lending can help solve.
In countries like Australia, many policymakers are strongly considering it as the only option to keep their housing market from creating costly problems.
In the U.S., a similar plan was used – known as “tax credit housing” – and proved so popular that senators from both parties worked to increase its funding by 50%.
The takeaway here is that there is a real demand for new homes in many markets throughout the country. Therefore, using this kind of financing to supply it should put you in a very profitable position.
2. NMLS Discounts Are Extremely Hard to Come By
In the past, one fantastic resource for building your rental property portfolio was the Nationwide Mortgage Licensing System. If you found the right loan officer, you could also count on generous discounts on the financing you needed for your rental properties.
Unfortunately, those deals are becoming harder and harder to find. At the very least, it’s no longer realistic to expect that you can build a portfolio from this type of lending practice.
On the other hand, BTR is much easier to secure.
3. The Benefits of Implied Equity
There’s also what’s known as “implied equity” that you can leverage when seeking build-to-rent financing.
Obviously, equity can help you purchase homes, but as your portfolio expands, it can become harder and harder to utilize this helpful asset. Until you build equity in your newest acquisitions, you can’t use it to secure financing continue adding to your portfolio.
By securing financing to build a home you immediately plan to rent, the equity you’ll create is implied. After all, you’ll be receiving rent payments that will go directly toward paying down the mortgage. This should help you secure the kind of discount NMLS is no longer offering.
4. Renters Want New Homes
According to USA Today, renting continues to take over the housing market. Whereas it was once assumed that people would rather buy a home than rent, that’s just no longer the case.
Even with the current economy’s stability, many real estate experts agree that “it’s better to rent than buy in today’s housing market.” This is why there’s arguably never been a better time to own rental properties.
Of course, that doesn’t mean that renters are willing to settle, either.
It goes without saying that, given the option to live in a new home, the vast majority of renters would choose it over picking something older – everything else being equal.
As the name implies, build-to-rent financing is used only for building brand-new homes. By doing so, you’ll have a much easier time selecting the kinds of tenants every landlord wants for their investments.
5. New Homes Attract Premium Renters
Speaking of which, as we mentioned earlier, choosing the right tenants is central to success in real estate investing. Aside from the fact that you depend on them for your rental-property income, they can also have a good or bad impact on your investment. Choosing the wrong tenant often means you have to pay for unnecessary maintenance and repairs, or worse, eviction.
This nightmare scenario is much easier to avoid when you have a new home that attracts lots of potential tenants. As you’re literally building the property, you can even choose to add the amenities that people value most in rental properties, further improving your chances of finding the best possible renters.
6. New Homes Have Fewer Maintenance Costs
Choosing great tenants should eliminate unnecessary maintenance and repair costs, but if you own an older real estate investment property, you’ll probably still spend money on those obligations at least once a year – maybe even more.
Financing a BTR property means your brand-new home shouldn’t require nearly as much maintenance. You can save that money to put toward another property for your portfolio or some other pending financial need. Even saving it – so you have cash on hand for an unexpected opportunity – is better than spending it on necessary repairs.
Start Building Your Portfolio with Build-to-Rent Financing
Are you excited about how build-to-rent financing could continue adding to your real estate portfolio?
If so, Rental Home Financing can help. Our build-to-rent financing products offer unlimited capital and include the following options:
- Up to 90% Loan-to-Cost Construction loans
- 75% Loan-to-Finished-Value Term Loans
- 12-to-24 Month Term Construction Loans
- Fixed or Floating Rate Construction Loans
- Fixed Rate Term Loans
- Flexible Milestone Draws for Construction Loans
- Full-Recourse Completion Guarantee