When most people think about getting started in real estate investment, they think about rental properties, specifically buying a new house and putting it up for lease. However, one of the latest housing trends sweeping the market is building a house from scratch to rent it to a tenant. But with all the work that goes into overseeing the construction, many investors wonder if this plan is profitable.

If you’re asking, “Is build to rent a good investment strategy?” Then read till the end of this article to find out.

What is Build-to-Rent?

As the name implies, the build-to-rent (or built-to-rent) model involves investing in new, primarily single-family units built for the specific purpose of renting. It is a booming sub-market in the larger world of residential rental properties, and it is becoming a phenomenally profitable strategy for real estate investors. If you consult a local property management company, you’ll understand how the increase in the rental market and frenzy over SFUs contributed to the BTR model’s success.

Benefits of Build-to-Rent

●    Attract Higher-Paying Tenants

The key to a successful rental business is attracting the highest paying tenants to your units. Seeing as there’s a growing demand for SFUs, investing in brand new rentals can pull the right target market in your direction. Since one of the selling points would be the novelty of the building, many of these hopeful applicants will be willing to pay competitive rents for a piece of the action. Remember that you still have to conduct a thorough tenant screening to steer clear of troublesome and destructive applicants.

●    Lower Tenant Turnover

Another benefit of Build-to-Rent properties is that the average tenancy rate is often longer than other rental properties. Since these buildings are new and usually built in strategic locations to ramp up their appeal, tenants are more inclined to stay. Moreso, residents also have the added value of privacy and space. You can find prospective applicants willing to commit to a tenancy agreement for three years or even longer.

●    Reduced Maintenance Costs

The older a house tends to be, the more maintenance it typically needs. Since Build-to-Rent properties are newer, they’re often better and require lower running costs. That can offset the operational expenses of your rentals in your favor and save you more money.

Drawbacks of Build-to-Rent

●    Higher Capital To Get Started

As highlighted earlier, the Build-to-Rent model specializes in newly built and more modern rentals. As a result, these properties are often more expensive to invest in because they’re in near perfect condition, unlike others.

●    Delayed Return On Investment

The subsequent effect of requiring more significant capital to get started with BTR rentals is that it takes longer to make your money back. While this strategy does have substantial long-term promise, it does require some patience. Although you can charge higher rent, those funds will go to cover your loan payments in the first couple of years.

Conclusion

The bottom line is the build-to-rent strategy is steadily gaining traction because we live in a community of renters. While you might not necessarily have to get out your hard hat and oversee the construction process, you do have to fork over some extra cash for newer properties.

However, despite that drawback and the delayed returns, you can still run a profitable rental business in the long run through adequate planning.