We’re chatting with renowned housing market analyst John Burns and taking a deep dive into one of today’s hottest niches … build-to-rent housing!
Low supply … high demand … and record low interest rates are just the start of the story.
John and his research associate are here to share key insights for investors like YOU.
In this episode of The Real Estate Guys™ show, hear from:
- Your hot host, Robert Helms
- His not-so-hot co-host, Russell Gray
- Renowned housing analyst, John Burns
- Housing market researcher, Devyn Bachman
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The basics of build-to-rent
Imagine a property with no deferred maintenance, high tenant desirability, a builder’s home warranty, and lower insurance premiums.
It’s not too good to be true!
It’s real estate built specifically for rent.
Now, you can buy a property to rent out. It could be a single-family home or an apartment building. It could even be a retail space.
But we’re talking about a unique niche within a niche.
Build-to-rent properties are designed and built for tenants AND to be owned by investors just like YOU.
As the world changes, people’s needs change too … especially in real estate. Investors need to adapt … but that’s difficult when properties have been built several decades ago.
The answer is to engineer a property to give tenants what they want while giving landlords a situation that makes financial sense … at acquisition and for ongoing maintenance.
We’ve had fairly long investment careers … and there have been several times in the course of those careers when we could consistently buy property below replacement cost.
This simply means that we could buy existing property below the price of what it would cost a developer to buy land and build a comparable new property.
But that’s not usually the case.
Typically, if you’re going to buy something below replacement cost … it’s going to be something built in the 1950s or 1960s … and it might be functionally obsolete.
Build-to-rent is an altogether different approach. It looks for demand from a tenant base and develops homes to meet that specific rental demand … while also satisfying the demand from investors for viable rental properties.
A brand new property means no deferred maintenance.
At some point, homes wear out and are no longer viable. A home that is 40 years old still has some life left in it … but not as much as a brand new home.
A brand new home also comes with a builder warranty … and insurance premiums are a lot less on new homes. They are built with the local weather and environment in mind.
Another way build-to-rent homes are unique is that they are built with what we’ll call “tenant-resistant” finishes.
When properties are built with tenant needs and wear and tear in mind, you reduce the cost of maintaining and operating the rental and reduce turnover.
So, there are a lot of reasons why build-to-rent is hot … but at some point, you’ve got to really dig into the data and feel the pulse of what is happening.
We thought it would be a good idea to connect with some VERY smart people who make their living crunching the numbers … and pick their brains.
A new approach to single-family homes
We first stumbled across John Burns in 2003.
John is a housing consultant. He works to help builders and developers figure out markets … what makes sense to build, pricing, and more fun stuff like that.
John’s firm has grown over the years … adding analysts like Devyn Bachman. Today they publish a lot of great information and conduct specific studies to help investors make informed decisions.
Why are they keeping an eye on the build-to-rent market?
“Reasons number one is that it’s the fastest growing part of our business,” John says. “The other part is that with the state of the stock market, there is a lot of capital out there looking for an investment with some safety behind it.”
When many investors start in real estate … they gravitate toward single-family homes. It’s what they know. Many of them grew up in single-family housing, so it makes sense to them.
In today’s market, many renters aren’t just renting because they can’t afford to buy a home. There is a significant portion that don’t want to be homeowners.
If you plan on being a renter for some time, why not live in a community full of other renters?
“There’s a long-time stigma of being the renter on the street. Now, you don’t have to have that because all the people on the street are renters and in the same boat,” John says.
The new subdivision approach to build-to-rent homes in many ways offers the convenience of an apartment complex … like a 24/7 help desk … but with single-family homes.
A rental home is different from a home you are going to live in forever. Your products need to be very durable … and certain features that may be desirable for homeowners may not be as popular with renters.
For example, a homeowner may like the idea of a fireplace. A renter, on the other hand, may not want the maintenance.
One of the issues that developers always face is the cost of materials and labor. With a spec builder, they build something and hope it sells.
By working directly with investment groups or individual investors on build-to-rent properties … a developer starts out of the gate with properties sold.
This makes it better for builders AND for lenders, too.
A demand-driven niche
Remember, this niche is demand-driven.
“We’ve heard from a lot of folks nationwide that we are facing a shortage of single-family homes over the next decade in virtually every market,” John says.
And that growth is happening despite … and in some ways because of … the global pandemic.
“Not only are we seeing strong rent growth in many of the markets, but extremely high occupancy rates as well,” Devyn says.
Particular markets performing well include Phoenix, Arizona … Austin, Texas … and Tampa, Florida.
For more on build-to-rent properties and current market trends … listen in to the full episode!
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