Manage episode 304194503 series 1248803
The build-to-rent trend is creating intense competition for land. There are reports that land brokers are getting a growing number of calls from investor groups who want to build single-family rental communities. And there’s a limited amount of suitable tracts of land, so competition is fierce.
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Forbes just published an article on this build-to-rent “land rush.” It says that for every veteran buyer, land brokers are getting 50 calls from groups who are new to this residential construction niche.
BTR “Land Rush”
Because there just aren’t enough existing homes on the market to meet investor demand, the build-to-rent trend is gaining traction. And that has off a stampede of sorts, for land. Forbes says that “a site that is well-suited for build-to-rent will typically get between 10 and 25 offers.”
This is also a new situation for land brokers. They have traditionally sold to developers who build homes to sell to the public. But now they are catering to investors who want land for single-family rentals.
One land broker told Forbes that between 5% and 10% of his land sales today are for new single-family rental communities. And he says that percentage is growing month after month. In fact, he says he expects those numbers to “double or triple in the next couple of years.”
And it isn’t just the big institutional groups pouring money into this market. The majority of them are smaller lesser-known groups, although the deep pocket investor groups do snag headlines.
The Forbes article was written by housing economist, Brad Hunter, who helps investors and builders with site-specific market data and analysis. He says the BTR groups also have different preferences for the kinds of communities they want to build. They range from low-density communities with just 4 to 5 rental homes per acre to high-density strategies with 11 to 12 homes per acre. But he says, a density that’s in the middle of that range is most popular.
BTR Investors vs. Homebuilders
This BTR “land rush” is creating a lot of competition with traditional homebuilders, because of skyrocketing rental returns. Rents are rising in large and small markets across the country, and that’s providing a strong motive for BTR investors.
Because they are well-funded, Hunter says that BTR investors are often able to outbid homebuilders. And, they are gaining more traction in markets where rents are rising the fastest. He says demand for BFR land is rising the fastest in bigger metros like Augusta, Savannah, San Antonio, and St. Paul. He also says there’s also growing demand in smaller cities St. Cloud, Pensacola, and Port Charlotte in Florida.
In addition to a limit on land, local ordinances are holding some investors back because there’s just more demand than local zoning laws will allow. Some of that is due to a general bias against rentals and local officials who are worried about how voters will react. Because of a perception that renters won’t make good neighbors, the NIMBY syndrome is strong in many areas. Hunter says that perception is changing however, because a lot of today’s renters are highly paid professionals who don’t want to be homeowners and prefer to rent.
Despite those headwinds, demand is there for single-family rental homes. According to Hunter and his company, Hunter Housing Economics, there are five things driving this demand.
Top Five Reasons for BTR Demand
1 - Household formation rates are pushing past 1.6 million per year
2 - Millennials want to raise their kids in the suburbs with good schools
3 - High rate of dog ownership and desire for yard space
4 - Remote work has created a demand for home office space
5 - Home prices are too high for young families to buy their own homes
Hunter says: “The potential for growth is enormous.” His company sees production ramping up over the next five years, with an increase in BTR starts each year. By 2025, Hunter’s company is predicting 180,000 starts, with demand still outpacing production.
You’ll find links to the Forbes article in the show notes at newsforinvestors.com. You can also learn more about single-family rentals at our website by joining RealWealth for free. As a member, you have access to the Investor Portal where you can view sample property pro-formas and connect with our network of resources. That includes experienced investment counselors, property teams, lenders, 1031 exchange facilitators, attorneys, CPAs and more.
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Thanks for listening. I'm Kathy Fettke.