By Joe Dyton, WCI Contributor

One of the biggest benefits of real estate investing, besides the potentially lucrative return on investment, is the number of options at your disposal. There is no shortage of opportunities available under the real estate investing umbrella, including turnkey, real estate investment trusts (REITs) and the BRRRR method (Buy, Rehab, Rent, Refinance, Repeat).

The real estate investing menu continues with build-to-rent properties. Like the previously mentioned investment vehicles, build-to-rent has its advantages and disadvantages. Still, the pluses could outweigh the minuses at a time when many want the single-family home experience but are having trouble finding a property to purchase.

Keep reading to learn more about build-to-rent real estate investing.

 

What Is Build-to-Rent Housing?

Build-to-rent housing is a concept where single-family homes are constructed with the sole purpose of being rented. This sounds similar to traditional house leasing, but the key difference is that build-to-rent homes are typically grouped together in a neighborhood or a community. Standard rented single-family homes are often situated among traditionally owned houses. Additionally, bigger companies often own and operate build-to-rent homes rather than individuals.

While build-to-rent communities are comprised of individual houses, they often offer many of the amenities people are used to having in an apartment complex. These include a gym, a swimming pool, and a leasing office. The property owners also manage the property and handle maintenance issues.

More information here:

Is Renting Better Than Buying? Why We’re Financially Independent and Renting

 

How Does Build-to-Rent Estate Investing Work? 

Large corporations typically own build-to-rent real estate properties, but there’s still room for individuals to do so. Here are a few ways to invest in build-to-rent real estate:

 

Property Ownership

Just as you would a standard single-family home, you’d purchase the property and find tenants who could rent it. This property would just be within the confines of a build-to-rent community, however. This investment strategy could be challenging because you’d be competing with companies that have the resources to buy and manage multiple units at once. Meanwhile, you’d likely have to hire a rental management company if you wanted to scale your portfolio in a similar fashion.

 

Invest as a Build-to-Rent Project Partner

If you don’t have the funds to fully finance a build-to-rent real estate property yourself, you could use the resources you do have to come in as a limited partner. For example, if a bank loans a developer most of the money it needs for a project, that developer would need to make up the difference somewhere. You could step in as a limited partner and help fund the rest of the project. Your investment would grant you ownership in the build-to-rent property and rental income.

 

REITs or Publicly Traded Real Estate Owners/Developers

Rather than invest in a particular build-to-rent real estate project, you could buy shares of a REIT and potentially earn money on all of their properties. Just remember that REITs own a variety of real estate ventures. If you want to invest in build-to-rent real estate in particular, make sure the REIT you invest in has those types of properties in its portfolio.

If you want to get even more specific with your build-to-rent real estate investing, look into a publicly traded property developer. It will be easier to research an individual company vs. a REIT, which could have thousands of holdings. The tradeoff, however, is you’re at the mercy of how that developer’s properties perform—REITs could offer a little more diversity.

More information here:

Why Is There So Much Hype in Real Estate Investing?

Using REITs to Supplement a 401(k)

 

Cost of Build-to-Rent Real Estate Investing

Build-to-rent real estate investing costs can vary, depending on your strategy. You could face a significant amount of upfront costs if you go this venture on your own. These costs include getting permits, procuring land, laying foundation and infrastructure, and actually constructing it. Once the project’s finished, you’ll be financially responsible for any maintenance costs that arise.

These costs are why individual build-to-rent real estate investors often look to pool their resources with others. Doing so allows them to still take part in a profitable venture without dealing with the stress of finding all of the capital on their own. The pooling resources option often includes syndication investment models, which a real estate sponsor manages and brings a certain level of industry professionalism to individual investors.

 

Build-to-Rent Real Estate Investing Companies to Consider

One of real estate investing’s biggest benefits is you rarely have to go into it alone. You can invest and work with companies that are willing to do the financial heavy lifting, allowing you to put out a lot less money than if you attempted to operate as an individual real estate investor. That support can be crucial if you’re looking at a big undertaking like build-to-rent real estate investing.

Listed below are a few companies to consider as you pursue build-to-rent real estate investing, including Southern Impression Homes and Origin Investments. Be sure to do your research on any company before choosing to invest your money so you understand the risks, benefits, and expectations.

Featured  Real Estate  Partners

DLP Capital
DLP Capital
Type of Offering:
Fund
Primary Focus:
Multi-Family
Minimum Investment:
$100,000
Year Founded:
2008

Origin Investments
Origin Investments
Type of Offering:
Fund
Primary Focus:
Multi-Family
Minimum Investment:
$50,000
Year Founded:
2007

37th Parallel
37th Parallel
Type of Offering:
Fund / Syndication
Primary Focus:
Multi-Family
Minimum Investment:
$100,000
Year Founded:
2008

SI Homes
Southern Impression Homes
Type of Offering:
Turnkey
Primary Focus:
Single Family
Minimum Investment:
$60,000
Year Founded:
2017

Wellings Capital
Wellings Capital
Type of Offering:
Fund
Primary Focus:
Self-Storage / Mobile Homes
Minimum Investment:
$50,000
Year Founded:
2014

MLG Capital
MLG Capital
Type of Offering:
Fund
Primary Focus:
Multi-Family
Minimum Investment:
$50,000
Year Founded:
1987

MORTAR Group
Mortar Group
Type of Offering:
Syndication
Primary Focus:
Multi-Family
Minimum Investment:
$50,000
Year Founded:
2001

AcreTrader
AcreTrader
Type of Offering:
Platform
Primary Focus:
Farmland
Minimum Investment:
$15,000
Year Founded:
2017

* Please consider this an introduction to these companies and not a recommendation. You should do your own due diligence on any investment before investing. Most of these opportunities require accredited investor status.

 

Should You Invest in a Build-to-Rent Real Estate Property? 

Build-to-rent real estate can be a great investment. Whether you should put your hard-earned money into it depends on your individual financial situation and your appetite for risk. As far as real estate investment risks go, build-to-rent properties are relatively low. The demand for build-to-rent real estate is high because more people tend to want to live in a single-family home. But they either can’t afford a mortgage or they prefer to rent but want more space than an apartment complex can provide.

Additionally, since demand for build-to-rent properties remains high, it’s easier to increase rents, which leads to more monthly income for investors. As more people work from home these days, the additional living space that build-to-rent properties offer makes them more attractive and should keep them in demand for years to come.

There are a few things to keep in mind before investing in build-to-rent real estate properties, however. First, this type of investment will require some patience. Remember, the first word in this real estate investment vehicle is “build.” It will take time to get these properties up and running, so it could be a while before you can begin collecting rental income.

build-to-rent

Other circumstances, such as construction delays and permitting issues, can also impact how profitable a real estate property is. Also, you may not see all of your potential rental income right away as some of those funds could go toward repaying loans and covering development and construction costs in the early stages.

 

Who Is Build-to-Rent Real Estate Investing Right for? 

Build-to-rent real estate investing is ideal for people who are looking for a steady, long-term return on their investment. As long as people are in the market for—and are willing to rent single-family homes—build-to-rent properties will be a safe investment. This is especially true given that there is far more demand for this type of housing than there is housing available.

Contrarily, build-to-rent real estate isn’t the best solution for an investor looking for a quick return. Your ROI comes over time as the houses get built and people move in and start paying rent every month. If you’re part of an investment group that bought into a build-to-rent project (vs. investing individually), it may be difficult to cash out quickly. If your goal is to buy real estate and unload it for a fast profit, consider house-flipping.

 

Real estate investing remains a great way to earn steady income outside of your salary. The vast amount of investment opportunities that exist make it even more appealing. If you’re ready to leverage the growing demand for single-family homes, build-to-rent real estate might be a good investment option for you.

 

WCI’s No Hype Real Estate Investing is the best real estate course on the planet and the best way to get started in this exciting (and profitable) asset class. Taught by Dr. Jim Dahle and more than a dozen other experts, this course is packed with more than 25 hours of content, and it gives potential investors the foundation they need. If you’re interested in real estate investing, you can’t afford to miss the No Hype Real Estate Investing course!

 

The White Coat Investor is filled with posts like this, whether it’s increasing your financial literacy, showing you the best strategies on your path to financial success, or discussing the topic of mental wellness. To discover just how much The White Coat Investor can help you in your financial journey, start here to read some of our most popular posts and to see everything else WCI has to offer. And if you're inspired to build a sturdy financial foundation, make sure to sign up for our WCI 101 email series.