Market Surging SFR Built-to-Rent Construction

Key Takeaways:

• Build-to-rent mortgaged homes are becoming increasingly popular in the United States among investors. In fact, the construction loan for this type of commercial real estate financing is becoming a popular investment. This is due to a number of factors, including the increasing cost of homeownership and the flexibility that renting offers.
• If you're considering moving into a build-to-rent home, there are a few things you should keep in mind. First, be sure to do your research. There are many different build-to-rent properties out there, so it's important to find one that meets your needs and budget.
• The build-to-rent financing sector is a new construction loan mechanism for sellers to acquire more items while also addressing concerns over housing affordability and downpayment money requirements in the for-sale market, especially during a time when an increasing number of people desire more space and a single-family home. When it comes to structural characteristics, single-family built-for-rent buildings differ from other recently constructed SFRs, especially the home size.

Build-to-Rent (BTR), BFR, & B2R Definitions

B2R, BTR (build-to-rent), B2R, & BFR (build-for-rent) are all interchangeable for the same concept: detached units designed specifically to be leased over longer periods or for sale. They're usually owned by a larger business than by a single individual, but individuals seeking passive income may invest in built-on-rent property. 

Some will use BTR to mean "Buy-to-Rent" so be sure the article you are reading is clear on buying or building, however, we will be using the acronym as it is used in Forbes as "Build-to-Rent".

SFRBTR = Single-Family-Rental Build-to-Rent

Construction Loan Data of Continued Growth

Construction for single-family homes that people rent (SFR - Single Family Rental) rather than purchase increased during the second quarter of this year as it became less affordable to buy a home with higher mortgage interest rates.

According to the National Association of Home Builders' analysis of data from the Census Bureau, approximately 21,000 single-family homes were started with the intention of renting them out during the second quarter of 2022. We have seen a 91% increase in total sales from the second quarter of last year.

In the last four quarters, 69,000 estimated homes that use SFRBTR construction methods began construction. This number is 60% higher in comparison to the 43,000 starts from last year.

Refinance Your Single Family Rentals

After your construction is completed to acceptable move-in standards, you may qualify for a refinance based on the potential income of the property. This is especially helpful after your construction project to proceed into other areas of the business that may require more funding. To learn more about refi-lending for your project, check out our section on refinancing rental property.

Future of Build to Rent

The fluctuations within this loan market segment are not significant enough to be statistically noteworthy. Loans for the present four-quarter moving average of market share of 6% is higher than the historical norm of 2.7%, suggesting that as this market segment grows, so will the data series.

It is essential to remember that the estimates provided only include homes that were built and kept by the builder for renting. The estimates do not include homes that are sold for the purpose of being rented out, which NAHB recently predicts may represent another five percent of SFR borrower starts according to industry surveys.

According to the Census, condos have a higher proportion of single-family houses built recently (non-fee simple), with this proportion averaging 4% recently. While some of these home loans will be put to use as rentals, others will not. Some SFR units that were built for rent may be counted as multifamily starts because they are often constructed on one plot of land. However, NAHB spot checks with permitting departments have revealed no evidence of this data problem to date.

Should I build a house to rent out?

The present real estate build-to-rent boom makes purchasing rental houses difficult. It's not always easy to tell if a higher demand will correlate with better returns. If one was seeking an apartment or condo in New York, it would have been a nice investment option. In some respects, however, investment in a property that is rented is both advisable and necessary to consider the pros.

Following the recession, the proportion of built-for-rent houses increased in subsequent years. While SFRBTR financed homes have a minor market share, they have been on the rise for some time. An increasing number of people will look for apartments or houses to rent in lower-density neighborhoods as opposed to living in a crowded city. Our section on apartment building loans covers apartment building lending in detail.

This will be especially true as mortgage interest rates stay high and increase. The SFRBTR market will thus expand in the quarters ahead.