Multifamily Developers See BTRs as More 'Reliable Revenue Source'

The American dream is now available for rent. Renters want the lock-and-leave lifestyle and maintenance on demand and are finding it in build-to-rent single-family homes communities.

Investors are flocking into markets and creating this lifestyle. This shadow market is no longer lurking — it’s becoming front and center. 

David Howard, executive director at National Rental Home Council (NRHC), led a panel discussion at the recent Apartmentalize conference about this new and growing path to living in a single-family home with Jay Parsons, VP, head of economics and housing, RealPage; Jeremy Edmiston, senior managing director, Cushman & Wakefield; and Lisa Taylor, Senior Managing Director.”

NRHC member companies include the nation’s leading providers of single-family rental homes that collectively own about 300,000 properties and about 1.5% of the country’s inventory of 23 million single-family rental homes. About 51 percent of current single-family rental stock was built in the past five years.

Greystar, the country’s largest apartment developer and manager, now has 3,500 BTR homes in its portfolio, spanning 13 states. It has another 4,300 in the pipeline, and is adding to its map, Taylor said. She said Greystar’s BTRs are about 96 percent occupied, a tick above the preferred 94 percent to 95 percent range. 

“We expect our BTR portfolio to grow to 30,000 units in five years,” said Taylor, who singled out Salt Lake City as an attractive market. 

“We’re changing the American Dream,” Taylor said. “Helping us to grow in this segment will be our ability to continually improve BTR operations and development – even if it’s something as simple as included outdoor outlets so our renters can plug in string lights – among other things, as we learn what most appeals to these customers.”

Taylor said that in investors’ minds, BTRs are not as “scary” to own or manage as something such as active-adult living or student housing. “BTRs are more reliable as revenue sources,” she said.

Helping to Fill the Housing Gap

Parsons called BTRs the “new starter home” in the exurbs and are helping to fill the country’s overall housing gap.

“These homes are more expensive than what they could afford to buy or build, and now they can rent them and live in them,” Parsons said. “This option just wasn’t there years ago the way it is now. There is no stigma about being a BTR renter.”

Mortgage interest rates have climbed significantly this year with no end in sight. The panel said that for what loan costs were in January, qualified buyers could get $375,000 toward a home; today, it brings $264,000.

Parsons said that there’s tremendous upside for this segment; and it’s showing a lot of demand. 

“BTRs cater to a different demographic than apartment renters and usually are located in places where apartments don’t exist,” he said.

“When you’re building for-sale homes, you’re taking on a lot of risk and are banking on demand from hundreds of individual homebuyers investing two or three years out. Homebuilders are developing BTR communities to offset some of that risk. There’s often a single buyer in place for a BTR community who, in the early stages, agrees to take possession upon completion, so it’s more reliable income.”

BTR Market Is ‘Hot, But Young and Small’

This is still the early innings for the BTR segment – a new concept that gained steam coming out of the Great Financial Crisis,” Parsons said, “because BTR communities are logical extensions for multifamily players.”

The panel agreed that the BTR market is “hot, but still young and small – comprising only 1 percent to 2 percent of the size of the U.S. apartment market. It could comprise potentially 20 percent to 30 percent of new rental housing, the panel shared.

These renters’ demographics vary compared to traditional market-rate apartment residents. While apartment renters tend to be in their early 30s, single and with no kids, BTR renters are in their early 40s and usually a couple with young kids.

Floorplans for apartments are mostly one- or two-bedroom models and BTRs include mostly three or four bedrooms. Apartments tend to be located as urban and suburban infill and BTR communities can be found in exurban and some suburban markets.

“Many families need three-bedroom homes and there simply aren’t very many of those in apartments,” Taylor said.

Interestingly, the chief amenity for BTR renters is the home itself – with its green spaces, fences and backyards. Apartments tend to market their common areas and neighborhoods.

With apartment management, two of the biggest complaints are noise and parking,” Taylor said. “Neither is a problem in BTRs,” she said.

Plenty of Space to Manage

Edmiston pointed out that single-family home median size has risen significantly in the past half-century, going from about 1,600 square feet in the 1970s to 2,550 square feet today.

“When people think of BTRs, they envision big green space; not a dense housing structure like in apartments,” he said.

BTRs are found to be more ideal for pet owners than apartments, the panel said. 

“Owning a pet is such a huge priority these days,” Taylor said. “Having a yard and a fence is a huge selling point.”

Edmiston said when welcoming new residents, many have never had to care for a home, and operators must be sure to give these new renters the proper walk-through.

“Many of them have never dealt with a breaker switch; HVAC filters, unclogging a toilet or even changing certain light bulbs,” he said. “Walk through with them so they feel comfortable about living there.”

Edmiston uses a 10-point scoring system to evaluable the homes’ area such as average household income; quality of schools; proximity to grocery stores, retail, everyday needs; local job growth and what are the drivers; average commute time to major employment centers; spread between buying a new starter home and renting a new home or an updated home in the shadow market; and occupancy levels of newer three-bedroom apartments in garden multifamily properties.

“BTRs are in the hot markets and there’s room to grow in the Midwest, for example, Edmiston said.

“We’re starting up with BTRs in Minneapolis and Indianapolis – we’ll be the first to build there and that provides a good advantage for us.”

Taylor said BTRs don’t have to be built in high job-growth areas to be successful, “they just need to be in areas with good demographics and high average incomes.”

Parsons said, like Class A luxury apartments a while back, the apartment industry is underestimating the potential for this market, especially in regard to building luxury BTRs, not just utilitarian style BTRs, which many first looked at this segment to do.”

Edmiston cautioned developers about “getting too far in front of their skis” in promising delivery of this product right now given supply-chain and labor challenges.