Whether they’re young professionals facing the high cost of a starter home or retirees looking to downsize, many Americans feel priced out of homeownership and are living in build-to-rent housing instead. With new construction growing 134% between 2019 and 2024 it’s also drawing the attention of investors.
This nascent real estate model, also known as BTR, is bringing together renters who want single-family-home living along with investors looking for stable, long-term cash flow. The match is growing in popularity and may be one answer to the affordable housing problem in the U.S.
This article explores the growing rise of build-to-rent housing to help you decide whether you might add it as an investment to your portfolio.
How Does Build-to-Rent Housing Work?
Build-to-rent housing is a property specifically designed, developed and constructed to be leased to long-term renters. Build-to-rent communities operate similarly to apartment complexes, with one property management group overseeing the property and communal amenities, such as clubhouses, fitness centers and swimming pools.
Homes are typically part of planned communities of 200 or more living units. With lower construction costs, townhouses have become the most-built structures, followed by single-family houses.
BTR properties often offer the single-family experience of private yards and garages, but are located within a professionally managed community. This sets these homes apart from traditional multifamily units and resale single-family rental homes that are scattered throughout an area.
Institutional investors with vast financial resources are partnering with builders and developers for single-family rental investments. Retail investors can join partnerships or buy into real estate investment trusts (REITs) to participate in these larger projects, or they can focus on constructing a single-family home or multiplex to start.
Why Build-to-Rent Is Gaining Popularity
The U.S. housing deficit now stands at 4.7 million units. That shortage for people who need homes is the main force driving the national affordability crisis. Coupled with continuing high interest rates, rising prices have kept many people from buying.
Additionally, younger workers, often saddled with student loan debt, are seeking to rent instead of buy. The cohorts of millennials and Generation Z are choosing to rent to remain agile to follow jobs, and they are choosing BTR homes because they want quality housing with more space and privacy than a multifamily apartment dwelling offers.
The building of BTR housing has increased rapidly in the last six years. The National Association of Home Builders said build-to-rent housing starts in 2024 numbered 90,000, or 9% of the share of single-family housing under construction in the U.S. The figure is up from 5% in 2021, although down a percentage point from 2023. Other industry watchers place the number of BTR housing starts in 2024 as high as 130,000 homes.
As demand drives the need for BTR housing, its building is also being spurred by well-funded institutional investors, with $14.8 billion in capital flowing into BTR housing in 2024 — a 27% increase from the previous year.
Build-to-Rent vs. Traditional Rental Properties
BTR vs. traditional rental properties have several differences, including the development process, target residents, management and maintenance, tenant turnover, and rental income.
Build-to-rent housing is built specifically to meet the needs of long-term renters, and the target demographics are retirees, young professionals and families. With lower tenant turnover, management and maintenance of properties tend to be less, but rental income often comes from higher rents for higher quality features and amenities.
Traditional rental properties may be new structures or those that are acquired. The mix of renters is more diverse than BTR housing. Leases are also typically shorter, and rents are lower.
Three main investment structures have emerged for BTR housing:
- Vertically integrated model: One group builds, owns and manages a community of homes.
- Contractor model: An investor serves as a developer and operator, but contracts with a builder to construct homes.
- Partnership model: Investors and builders partner, with the builder buying the land and constructing homes while the investor buys the homes.
Build-to-rent offers investors opportunities for growth and diversification by owning a community or a portfolio of homes under singular management. The economies of scale offer operational efficiency and reduce the cost per unit, helping bolster and deliver consistent returns.
Tenants sign longer leases than they would with traditional rental properties. They enjoy desirable amenities, build a strong sense of community and well-being, and pay higher rents for quality features.
Pros and Cons of Build-to-Rent for Investors
Pros:
- Passive income real estate: BTR can generate a steady stream of rental income
- Higher rental rates: Quality features and amenities command higher rents
- Lower tenant turnover: Leases are long-term
- Lower repair and maintenance costs: Properties operate with newer appliances
- Investment options: Investors can choose from a range of property types and locations
Cons:
- High upfront costs: BTR requires a substantial amount of capital
- Competition: Investors have to go up against established developers and institutional investors
- Knowledge and skills: You need to understand real estate analysis
- Delayed returns: Properties can take six months to two years to generate rental income
- Potential renter issues: Expect late rent or irresponsible tenant behavior.
How to Invest in Build-to-Rent Housing
You have several ways to invest in build-to-rent housing.
- Direct ownership: You purchase property, oversee the construction of build-to-rent units and manage the rental homes.
- Real estate syndicate: You join others in a limited partnership to supply the capital for a sponsor to oversee and manage the BTR project.
- Buy units: You vet a developer and buy BTR units from them before or after construction.
- Crowdfunding platforms: You make fractional investments online in vetted BTR projects or communities.
- REITs or ETFs: You invest in real estate investment trusts (REITs) that own and operate BTR properties or exchange-traded funds (ETFs) that hold BTR properties.
You may need to be an accredited investor with a net worth of $1 million or more or earn at least $200,000 annually to qualify for certain investment options.
Consider Investing in Build-to-Rent Housing
Real estate professionals believe the build-to-rent strategy has passed the concept stage and will play a big role in the future of real estate. Now that you know what it is, how it works, the ways to invest, and the pros and cons of build-to-rent, consider whether this long-term real estate investment strategy fits your financial goals.
Frequently Asked Questions
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A build-to-rent community is a neighborhood designed and built specifically for renting homes instead of selling them. Build-to-rent communities also typically have one professional property management group and can include single-family houses, townhomes, duplexes or small-lot homes.
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Build-to-rent and buying rental property are both real estate investment strategies. However, build-to-rent involves constructing homes specifically to rent them out, often as part of a professionally managed community, while buying a rental property involves acquiring a new home built for sale or an existing property that has been occupied.
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Yes, you can participate in build-to-rent in several ways. You can invest through a crowdfunding platform or an investment club, or you can buy shares in a real estate investment trust (REIT).
