What is Build-to-Rent? - The Complete Guide

If you're planning on renting one of your properties out, already have an active presence in the property market or want to know more about the rent developments, you should consider built-to-rent (BTR or B2R).

Compared to others in the rental market, these properties have lower maintenance, they're often built in a strategic location allowing higher chances of occupancy than other rental properties, and they are known as a fantastic form of affordable housing.

Build-to-rent developments are not a new concept either; they've been around for a while. Keep on reading to know exactly what they are and how these rental properties can enhance your lifestyle.

What is build-to-rent developments?

Build-to-rent properties are exactly what their name suggests. They're a rental property specifically built for the rental market, compared to the intention of being owned for a home. It's not a new concept either; it first came into existence in the U.K. as an incentive for more investment in private rental property.

Today, build-to-rent schemes are one of the fastest growing in the rental property sector by 50% ever since 2015. However, compared to other properties in the private rented sector, the sites are still small but rising. To encourage development, many BTR properties are now being backed by the British government and the home rental scheme.

In the private rental market, BTR developments tend to be new apartment blocks that are for renters. They often have 50 homes, at a minimum, owned and managed by a landlord. The main problem BTR addresses in the rental sector are that they help solve common problems renters face on short term leases, saving them from paying large fees.

Benefits of Build-to-Rent vs Private Rental

When it comes to private renting and build-to-rent homes, there are a lot more benefits with Build-to-Rent. More investors are mainly opting for Build-to-Rent properties because they offer more advantages than private rental homes. The benefits of Build-to-Rent are the following:

Less maintenance 

One of the main benefits of build-to-rent properties is you have lower maintenance fees. Simply having just lower maintenance costs can help you significantly with your outgoing. Similarly, high-end rental property management often manages many of them, helping with property maintenance and expenses.

The schemes often provide on-site services allowing maintenance to be carried out without losing money. In contrast, some private properties don't always comply with government maintenance standards.

Nicer tenants

Compared to private housing, you're more likely to have better tenants in your property as it's managed by a property management company (PMC). PMCs undergo extensive screening to ensure they are the right match for your property and can pay their rent on time. 

Plus, they also ensure tenants are aware of the services you provide and your policies. As PMCs tend to handle everything, tenants often are less confused and happier in your property, making them likely to extend their tenancy and have less turnover.

Greater community

With BTR properties, there's a greater chance of tenants feeling more connected to their local community. This is because many of these developments provide communal spaces like gyms, swimming pools, parks, workrooms, and more. Private rentals often limit the amount of social interaction due to the lack of communal areas.

Stability

Another major benefit build-to-rent offers compared to affordable private rental homes is that they provide tenants with more security. There are fewer chances that tenants might have their landlord move back into their residential property or want to sell it.

Affordable housing

BTR properties provide affordable housing in comparison to private rentals. Part of the reason for this is there are government guidelines that advise that BTR developments must provide 20% of their sites with affordable housing. Therefore BTR properties save people from paying the high prices that private city rentals often charge.

Better location

As well as providing affordable housing, build-to-rent properties are often built in strategic locations in comparison to private rentals. The main reason for this is property investors are always looking for ways to expand their property portfolio by building and developing in areas that provide them with a greater ROI and fewer chances of loss.

Builders warranty

Often newly constructed build-to-rent developments comes with a warranty of workmanship. This means that there is often covered for the materials used to build the property in case there is any deterioration, damage or anything else for a period of 1-2 years following the build.

What are the hurdles in this Rental Market?

When it comes to offering build-to-rent properties, there are a few disadvantages owners and tenants might face. The common disadvantages associated with this rental sector are the following:

• Rent can be more expensive than an apartment: Often, BTR properties can be costlier than renting an apartment or flat. This is because these properties are often more costly to build.
• Cost can be similar to homeownership: Potential tenants may sway towards home ownership rather than build-to-rent. Part of this is that mortgage payments can go towards paying off their loan, and they often have a property they can call their own. Similarly, with more loans and zero payment options, more people want to get their own home than undergo rental.
• Smaller spaces: Compared to other rentals on the property ladder, BTR tend to be much smaller.
• Lack of charm: BTR properties don't always cover every tenant's preferences, especially if they're looking for specific characteristics. Similarly, if they're looking for more of a rustic and homely property, they may opt for something else instead of BTR.
• Restricted on remodelling: If you want to renovate your rental property, it can be difficult for tenants with BTR. As they've been built for a specific purpose, tenants may find they lack the freedom to add paint, flooring or anything to suit their preferences.
• Not always catered to everyone: One of the main challenges many property owners might face is that not all BTR properties are catered to certain types of people. For instance, these properties are not always well built for families, and those may find a lot of financial difficulties.

Is Build-to-Rent Rental Growth Emerging in The UK Market?

Build-to-rent schemes first appeared in the past 10 years and are nothing new. But, during these past 10 years, more people have been instilling their trust in this rental sector, and more major investors are attracted to it. To give you an idea, in the first half of 2022, the UK BTR market totalled £1.7 billion, and since COVID-19, the investment in this rental sector has totalled around £9 billion.

Even though there is a rise in inflation, the demand for these properties is increasing as they're targeting the young middle class, such as professionals, roommates and graduates. These properties also attract more of the younger generation to get on the property ladder.

Why is Build-to-Rent getting so popular?

One of the main reasons the build-to-rent market is gaining more attraction in the U.K. is because investors are now looking at liveable areas with community values. 

Properties which have more community segments are the ones that contribute toward growth, attract a certain demographic and provide a structural change. Alongside this, there are other reasons why BTR is gaining attraction which are:

A lifestyle shift

Due to the rising cost of living, the surge in house prices, rentals and the shortage in the housing market, many people are finding it difficult to buy a home. This is especially relevant for the younger generation as more people tend to rent properties as opposed to jumping straight onto the property ladder. 

Therefore more people are considering BTR properties instead of buying or private renting. Similarly, many elderly people looking to downsize from their homes seek BTR properties to give them more comfort.

Higher quality living spaces

Due to the fast-paced lifestyle we all live, more people are seeking properties that have a little burden. In particular, they're looking for a property that's well managed and of high quality. 

Tenants don't want to come into any maintenance problems; when they do, they want them fixed quickly. Similarly, they're often looking for properties that are move-in ready and ones that are furnished to a high quality.

Moreover, BTR properties also provide tenants with additional spaces such as communal areas, working spaces, shared gardens, wellness areas and concierge services to attract them. These provide people with higher quality rental experiences than a typical private landlord.

Modern interiors

While many properties in BTR are quite restrictive when it comes to renovation, many of them are designed for modern purposes. Many build-to-rent homes place a focus on interior design and sustainability. Therefore they're often attracting people who want to move into modern spaces.

How is Build-to-Rent Beneficial For Owners & Renters?

BTR properties benefit both the owner and renter, increasing satisfaction and happiness simultaneously.

What are the Build-to-Rent Benefits to Owners?

One of the major benefits of build-to-rent properties is that they are lucrative to own. As these properties are made and don't get placed on the market immediately, they're only rented out after they've been completed. Because of this, owners and investors of BTR properties generate a consistent and long-term income stream.

Moreover, annual cash flow can be forecasted as rents are less likely to decrease, and net profit can be predicted due to operational expenditures. Therefore capital growth can be preserved, and a steady income can come from the property.

What are the Build-to-Rent Benefits to Renters? 

Another significant benefit for renters in build-to-rent properties is that they provide them with a sense of security. Part of the reason for this is that these properties' tenancies tend to be much lengthier than traditional private rentals.

Tenants also tend to have more privacy than in typical apartments without paying a mortgage. Often they have a greater sense of security as they're in a neighbourhood which has a gated community that has shared amenities.

Is Build-to-Rent A Good Investment?

If you're looking to develop a build-to-rent property, it can be a great investment due to the following:

Quicker absorption

Unlike new builds, BTR tends to have a lot quicker absorption rates. As renting can happen faster than buying, projects fill up quickly, allowing you to reap the benefits instantly. With BTR properties, you're less likely to wait for a deal to be made and have a higher chance of your community filling up with tenants paying rent.

Steady cash flow

If you invest in a BTR properly, you will rarely face any depreciation. This is because these projects won't provide the same typical models for valuation; instead, they're assessed on long term income. Because of this, you will get a steady cash flow.

Are there any specific Build-to-Rent Guidelines for Owners & Renters?

When it comes to developing and renting a build-to-rent property, there are a few guidelines to follow: 

• The default amount of affordable housing: The U.K. government states that with BTR schemes, there should be at least 20% lower rent charged in the private market.
• The space: BTR properties must exist in at least one building where all the spaces are 100% privately rented and managed under single ownership. The tenancies of these properties can be 3 years or more.

Conclusion

Overall, BTR properties provide young professionals, graduates, students and elderly singles a unique rental experience. Compared to buying houses outright, they're more affordable and modern to cater to their living requirements.

Moreover, BTR often provides communal areas giving tenants a higher quality of living by having access to wellness areas, parks, gardens and more. On the other hand, as a developer, they're highly beneficial as you get a consistent cash flow, fewer maintenance problems and long term tenants. Due to the pandemic's lifestyle shift, the demand for BTR properties is only going to increase, which is a market you might want to tap into.

If you've got a BTR property and want to advertise it or looking to move into one, sign up with us at TrustedStays. We advertise and provide high-quality rentals for government and corporate stays at Trusted Stays. We also help professionals in the property industry with their property management and connect them to accreditation partners.