Build to rent communities are here to stay. This once-regional product segment has made its way across the country due to the increase in rental demand and investment potential. The communities feature design similarities and revenue potential that are attracting residential developers and traditional homebuilders.
Table of Contents
- Business Advantages of Build to Rent Communities
- What’s the Appeal for Renters?
- Typical Build to Rent Product Types
- Design Tips for Build to Rent Homes
- Build to Rent Takeaways
Single family build to rent (BTR) communities continue making positive strides in the real estate market. Construction of single-family build to rent homes is on the rise and shows no signs of slowing down. There were approximately 13,000 build to rent housing starts in the first quarter of 2022, a 65% increase compared to the same time period the previous year.
With skyrocketing home prices and higher interest rates, the cost of market entry is becoming too high for many households. The events over the past two years also created a work-from-home culture for many companies, creating an opportunity for workers to live where they want and move around more frequently. Coupled with the lower-maintenance and flexible lifestyle that renting affords, it’s easy to see the appeal of build to rent homes and communities.
With high absorption rates, cheaper land in select markets, and volume scaling opportunities, more developers are looking to BTR to diversify their holdings and capitalize on a growing market segment. Even big builders are getting in on the action. Toll Brothers is teaming up with its apartment living division to develop single-family rental communities. BTR communities are on the horizon for Lennar, Taylor Morrison, Pulte, and D.R. Horton.
But the design approach to build to rent homes has some key differences from traditional for-sale homes. We have the privilege of working with clients on several build to rent projects currently in various stages of development. Here, we’re discussing everything you need to know about BTR, from business advantages to renter preferences. Using several of our R&D plans and on the boards plans and concepts, we’re also highlighting some key design features that make these projects successful.
Business Advantages of Build to Rent Communities
Build to rent boom towns have emerged in the last couple of years, like Las Vegas, Houston, and Phoenix. What these cities have in common is threefold, benefiting both the developer and renter:
- Cheaper land
- Faster permit approvals on average (compared to other large metros)
- Desirable mid-sized cities with large employment centers and lower costs of living
Particularly for the developer, build to rent communities present an opportunity to diversify their investment portfolio to better withstand the market fluctuations of their for-sale neighborhoods. According to John Burns Real Estate Consulting (JBREC), our current housing affordability environment favors renting over buying, with the national monthly mortgage payment $839 more on average than monthly rental costs. We’re also seeing renewal rents growing 8.5% during Q2 2022 and turnover at a record low of 23% for the same time period. Taking a local look, metro Denver’s average monthly home ownership costs exceed rental costs by $988, second only to Austin, Texas.
Given this market reality, would-be buyers are quickly becoming renters. Developers with the ability to pivot a portion of their business operations to meet today’s market demands could capitalize on these market shifts without too much disruption to their current operations.
Lot size isn’t as much a priority for renters as it is for home buyers — a win-win for developers and renters who don’t wish to assume the maintenance cost a large yard requires. Smaller lot sizes allow build to rent developers to offer a higher-density product mix and increase their land capital returns.
What’s the Appeal for Renters?
Renter demographics are evolving as more people prefer to work remotely and as households feel the squeeze of inflation and higher mortgage rates. When it comes to real estate, 66% say it’s a bad time to buy a house, according to a recent JBREC study. These households are choosing to rent for the time being, and are drawn to communities that offer a reduced-maintenance lifestyle, flexibility, and lower housing costs. Nearly 80% of renters are interested in living in a single-family home community, according to a 2021 RentCafe survey.
There’s a lot of appeal to living in a single-family home instead of an apartment. The biggest drivers for most renters are space and privacy. They’re looking for the option to have a small yard or outdoor space, and more bedrooms. Approximately 65% of single family rental (SFR) homes have three or more bedrooms, versus just 11% of apartments. This makes SFR properties a natural choice for families who aren’t in a position to own a home, or any renter who is simply looking for more space. Rentals can even be an attainable way for families to get into quality school districts.
Another appeal of build to rent communities is the level of home design and finishes. Many existing rental homes are older, with outdated floorplans and finishes badly in need of replacing. Since build to rent is a relatively new concept, homes generally feature the latest in modern floor plan designs. And, since they’re intended for renting, have high end, durable finishes that are easy to take care of. More about design and finishes later.
Typical Build to Rent Product Types
Horizontal apartments – or “cottage homes” – are one of the most popular BTR product types. These are small single-family detached homes that typically range from approximately 650 to 1,400 square feet with 1 to 3 bedrooms and 1 to 2 baths. Similar to a garden apartment complex of buildings three stories or less, horizontal apartments do not commonly include an attached garage.
While they don’t offer much more square footage than you’d find in a traditional apartment, horizontal apartments have added privacy and often have their own outdoor space. Cottage homes combine the best of both worlds, with the privacy of a single-family home, and the flexibility and added amenities associated with apartment living. Builder marketing teams should be mindful of the marketing language used to describe this product type too — renters tend to prefer the term “home” over “apartment” when house hunting.
Other typical BTR product types include:
- Traditional single-family detached homes on traditional lots (slightly larger than a cottage home and with a private garage)
- Townhomes or rowhomes, typically in two to seven-unit building configurations
- Luxury single-family detached and attached homes
Design Tips for Build to Rent Homes
Thoughtful design goes a long way when working on build to rent product. The differences between build to rent and build for sale homes are often subtle, but not to be underestimated. The right design choices can make a huge difference to your renters, your maintenance costs, and ultimately your bottom line. Here are some of our top design tips for rental homes:
Simple and Standardized
A key selling point of new build homes is the buyer’s ability to personalize their home and make it their own. Not so with build to rent homes. A nice thing about this particular product type is that renters, on the whole, don’t expect custom or personalized home design. But this growing market does expect a home that’s clean, thoughtfully designed, and well-constructed.
As such, build to rent is ripe for replication and value engineering with the potential of developer cost savings from materials purchasing to labor. Construction and installation are easier and faster when your community offers fewer plans with the same materials and fixtures. Specifying available materials, vanities, and kitchen cabinet layouts that are repetitive and standardizing appliances will simplify construction and modifications in the field. Future maintenance and replacement will also be easier and less costly.
Our two R&D plans below illustrate two straightforward layouts with plenty of features to meet local market demands. Highlights include:
- Floor plans from 1,652 to 1,682 square feet
- Three bedrooms for growing families
- Larger kitchens with center islands
- Front load or alley load garage options
Rental homes are often smaller, since there are diminishing returns on what renters are willing to pay for more square footage. To make small homes feel larger, go for 9’ ceilings or higher.
There is also a demand for luxury build to rent, a subset of the product that appeals to a growing number of higher-income households that prefer renting to purchasing a home. For example, millennials and retiring baby boomers are two demographics that are part of this emerging renter profile that prefers easier, low-maintenance living.
Some design elements developers should consider for luxury build to rent include attached garages, brand-specific appliances, and increased amenities that could include a concierge service. A garage is a desirable feature that should be an available option. If units don’t already have an attached or dedicated garage, offer one-car garage rentals onsite. If you’re looking for density, cluster the garages and add a unit or two above the garages for additional revenue potential.
Finally, being mindful of standardizing home plans that are regionally appropriate is important. Typical plans for one climate zone may not work well for another. For example, a home plan for Phoenix, Arizona, may not be appropriate for Boulder, Colorado (at least not without some modifications).
Building for the Future
While renters in build to rent homes tend to renew leases longer in these communities compared to typical apartments, they are more transient than home buyers. Build to rent communities will see more families move in and out over time compared to for-sale neighborhoods, so designing homes to withstand more wear and tear will reduce frequent and expensive replacement costs. From a design perspective, specifying fixtures and appliances that last one to two cycles is ideal — then evaluate an update to capture newer trends to appeal to a fresh market.
For floor plan layouts, wider hallways and stairs will accommodate easier move-ins and move-outs. Consider door placement to minimize hallways and circulation. Bedroom placement closer to the top of the staircase makes it easier to move bulky furniture in and out.
Reduce the number of interior doors. Doors cost money and break easily. Examine closets, linen closets, and pantries — sometimes recessed open shelves are a better option to eliminate wear, tear, and replacement.
Simplifying and standardizing design doesn’t mean skimping on quality. Improve a build to rent community’s longevity by investing in better-quality materials and fixtures that will see a lot of use. Cabinets, countertops, and flooring are the most noticeable in a home and often the most expensive to replace. Consider laminate cabinets with a condensed wood core that’s less susceptible to cracking or warping with humidity. Laminate countertops can include bullnose edges or mitered corners to achieve the look and feel of solid surface material. Resilient flooring like LVP or LVT won’t warp or crack like engineered hardwood, and can withstand high amounts of foot traffic from kids and pets.
Durability is key in BTR design and specifications. Being mindful of current and projected supply chain issues, finishes and appliances should be selected with durability and ease of replacement in mind. Weigh upfront cost versus life cycle maintenance costs. Often, spending a little more in the beginning can save a lot of money in the long run.
Allowing for Privacy
BTR homes also offer a feature not often found in multi-family apartment buildings: more privacy. Discerning renters desire many of the privacy benefits of single-family detached living, most notably the ability to live without anyone above or below them and outdoor living opportunities.
Improve the desirability of BTR homes by including a patio or small back or side yard that allows renters to enjoy outdoor living in privacy and comfort. Outdoor living is popular not only with home buyers but renters too. One of the reasons renters choose a BTR home over an apartment is the ability to expand their living space into the outdoors beyond the small patio or deck an apartment complex provides. Families with young children, pet owners and BBQ lovers appreciate outdoor space and are willing to pay a premium for it. Providing cover or shelter at these spaces is an added bonus.
Oftentimes renters don’t have control over repairs and maintenance scheduling. Placing the mechanical closet in the garage or on an exterior wall can eliminate the need for service personnel to enter the home for maintenance and repairs when the tenant is away from home during work or vacation.
Being mindful of the orientation and the placement of bedroom and bathroom windows will also address renters’ privacy needs. If that’s not possible given lot or other constraints, adding a few clerestory windows to rooms will create more privacy while letting in natural light. Proper land planning and bringing in an experienced design firm early on in development will balance renter privacy needs with maximizing density for capital returns goals.
Creating Storage Space
Build to rent communities appeal more to families, and families have a lot of stuff. Offer as much storage as possible to attract this growing segment of renters. The downside of many rentals is the lack of storage! Now’s the time to get creative with your layouts and floor plans. For example, if the home has two stories, explore the possibility of adding a storage area under the stairs, or in the rafters of the garage trusses. In BTR, any storage is viewed as a plus.
Another storage spot idea is the in-house laundry space. Laundry spaces can be small, a closet with a little extra space in front of it will work fine. But if you can provide a small storage compartment or cabinets adjacent to the laundry, that’s a bonus.
Private storage outside the home is also an attractive option. Non-garage units can feature a storage locker that’s included in the monthly rental cost or available for an additional fee.
Considering the Community Experience
As renters’ housing preferences evolve, we’re learning that it’s what’s outside the home that counts too. The homes’ exterior architecture should complement the surrounding area, especially if it’s within a master-planned community. It is more visually appealing and will help gain community acceptance.
BTR developers should take note that community experiences are resulting in faster absorption rates and higher rent premiums, according to a recent analysis from John Burns Real Estate Consulting. Renters want the community and lifestyle experience similar to a new for-sale neighborhood, master-planned community, or the urban apartment environment they left for the suburbs. A sense of arrival and curb appeal with front yard landscaping are essential in making a positive first impression.
It’s also important to address the infrastructure and how these visuals contribute to the look and feel of the broader community. The location of trash receptacles and electrical transformers should be considered during the planning process so they don’t detract from the community’s sense of place.
Just like home buyers, renters in build to rent communities want a place to exercise, connect with neighbors, and walk the dog. Some top-rated BTR community amenities include:
- On-site maintenance
- No maintenance yards
- Pool and clubhouse
- Access to trails
- Fitness center
- Dog park
- Dog grooming amenity to reduce in-home wear and tear
- Bike storage
- Bike workshop
Build to Rent Takeaways
Changing market conditions create the need to provide new product and innovative ways of doing business. Attainability of buying a single-family home, although not a new topic, is at the forefront of the conversation. For builders, land owners, and capital investors, BTR communities are an opportunity to build a portfolio of assets that can better withstand build for sale market fluctuations.
For renters, BTR communities provide fewer barriers to entry, with the added privacy of a single-family home and the amenities and flexibility that apartment dwellers are accustomed to. A rental community also provides the opportunity for a new home buyer to experience the community without the initial investment, the privacy of a single family home without the mortgage, or just the freedom to roam from city to city.
Great BTR design balances developer business needs and renter lifestyle preferences. Proper land use planning and an end-to-end design approach are crucial to a BTR community’s success. Our team integrates architectural diversity, space planning, and material specifications that meet local market demands and help developers maintain costs. For information about our build to rent residential planning and design services, please contact us for a consultation.
Special thanks to Don Walker and his team at John Burns Real Estate Consulting for being a valuable resource for this blog.
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