Does anyone on the forum work in build to rent SFR? I’m starting to see more and more of it and would love to hear some thoughts on this niche. I know it’s an open ended question, but what do you think of the niche? Do you like it? How do you like working on it? Is there anything you don’t like?
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Ton of growth in the past 12 months. Ton of money just pouring in from seemingly everyone. It's extremely simple to underwrite (SFR Comps - Property Taxes - HOA/CDD Fees). PM me if you want to talk more.
Thanks I’ll PM you
How are you financing it? The most efficient and cost effective path seems to be through national builders (Ryan, Lennar, etc) but they are not a GC and don't work through a GMP. How does debt get comfortable with that?
Smaller GC are abundant and are typically eager to flip out of sites quickly so they can move on to the next build.
Most of the big boys are paying cash for a finished home at CO then rolling it into a credit facility or securitizing.
from the developer side, you have all of these groups willing to basically put unfinished communities under contract 12 months in advance of delivery AND put 10% of total purchase price down. If you’re a developer with a takeout contract in hand asking for 85% LTC you only need to contribute the land essentially because you have the 10% of PP in your back pocket. It’s absurd.
I would disagree with the guy below - it’s really hard to find a GC right now because of the labor shortage. Most of the highly capitalized developers are tying up as many as they can.
We're closing on a community today. From our investor deck -
"Single-family built-for-rent (BFR) communities are, as the name implies, homes built specifically for the rental market. BFRs are a growing niche in the U.S housing market, with construction growth of over 8% (as of Q2 2021 over the preceding four quarters). BFRs look identical to a regular home; however, they are collectively operated like a multifamily property. These homes are operationally efficient and, according to one operator, “blend single-family homes with maintenance-free living and private leased-home neighborhoods.” Tenants are believed to be stickier because renters see their rental home as a long-term decision versus renting a traditional apartment. The Co-Managers believe BFR communities yield premium rents estimated at 10-15% over conventional 3-story walk-up apartments.
RCLCO, a real estate consultant, believes that the single-family rental market will be undersupplied over the next ten years, even with the increased attention the property type is receiving from institutional investors. The demand from renters for this type of product is being driven by a large percentage of households in a stage of life where a single-family home better suits their lifestyle, but the affordability of the housing stock has become challenging.
The median price of a new home in the U.S recently rose to an almost record level of $390,900.4 To afford a traditional 20.0% down payment, a household earning the median income in the U.S would need to save $78,000, $10,000 more than the median income for 2020. This has driven more millennials who have been priced out of traditional homeownership to the single-family rental market.
It is important to remember that rentals are typically a counter-cyclical business, as more people tend to rent during recessions. Careful attention should be paid to the character of the market and neighborhood in which BFRs are built."
To those who do this: what are the biggest ways you deviate from typical for-sale homes- in square footage, level of finishes, layout, etc.
Is BTR seen as warehouse loans (typically what you see for single family for sale homebuilders) by banks or multifamily loans?
We're on our 6th. The acquisition model of buying completed homes from builders is pretty much toast at this point, all of the builders have realized they can either do better selling retail, or place the vertical construction risk on someone else by just flipping out of the dirt at a premium to their basis. Conventional financing is easy to get up to 75% LTC.
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I've executed 2 of these in the past 8 months with national home builders. I'm very concerned with supply in almost all of these markets where the homebuilders are considering offloading these projects.
We're also a capital allocator and I've never seen more LP dollar requests to capitalize these projects. Something seems very off.
Tread lightly when deals seem to fall in your lap.
Happy hunting.
Who’s financing these? Lenders aren’t so comfortable with this asset class
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