Build-for-Rent Investments Keep Getting More Exciting
Build-for-rent (BFR) communities represent a rapidly growing segment of the residential real estate market, characterized by high-quality, professionally managed single-family homes and townhomes available for lease. Owned and operated by institutional investors, BFR communities provide residents with a unique living experience that blends the privacy of a single-family home with the convenience of multifamily property management services, including leasing, landscaping, repairs and maintenance available.
BFR homes offer significant lifestyle advantages over traditional multifamily housing. These properties provide greater privacy and feature spacious layouts, typically with dedicated outdoor areas, such as backyards or patios. The average unit size of a BFR home is approximately 1,200 to 2,000 square feet, compared to around 900 square feet for a typical multifamily unit. First-floor ceilings in BFR homes often reach nine feet or higher, and windows may be present on multiple sides, providing abundant natural light.[i]
The demand for BFR housing is underscored by shifting demographics and lifestyle preferences. With homeownership rates declining among younger generations, many families are opting for the rental lifestyle without sacrificing space and community feel.[ii] BFR developments cater to this demand by providing neighborhood-style settings, often with amenities such as pools, clubhouses, playgrounds and walking trails. According to the National Rental Housing Council, the BFR segment has grown at an annual rate of over 30% in recent years, outpacing other residential categories. As of 2024, there are over 140,000 BFR units under construction nationwide, highlighting the scale of investment flowing into the asset class.
Investors are increasingly attracted to BFR communities for their total return and income potential and resilience during economic uncertainty. Single-family rentals (SFRs) have demonstrated an effective hedge against inflation, as evidenced by rent growth that has consistently outpaced inflation rates over the past decade. Expanding demand pockets, particularly in high-growth regions like the Southeast U.S. and Sun Belt, are driving further interest and positioning BFR as a critical component of the residential real estate landscape.
The evolution of the BFR asset class is at an exciting inflection point, with increased institutional interest and consumer demand propelling new development and opportunities for long-term growth. As a differentiated rental product – offering privacy, space and community amenities – BFR continues to set new benchmarks in the rental housing market, providing a compelling option for both residents and investors.
Recent build-for-rent datapoints catching our attention:
- A 3.9 million single-family home shortage exists in the U.S., and this shortage is most prevalent in the South.[iii]
- The cost of home ownership is approximately 52% higher than monthly rent for the average American starter home. While this will likely tighten with lower interest rates, ownership costs are predicted to stay elevated over the next few years.[iv]
- Positive rent growth also returned in Q2 2024 with an increase of 1.5%.[v]
- In addition to stronger rent growth projected in the next two to three years, build for rent has significantly outperformed both SFR as a whole and traditional apartment occupancy since the end of 2021. On average, BFR communities across the U.S. are occupied at 97%.[vi]
- BFR communities make up 1.5% of the total single-family rental market. In other words, there’s plenty of room to grow.[vii]
At present, single-family rentals represent 31% of all rental units in the U.S. Of the 14 million SFRs, only 3% are institutionally owned. By comparison, other core real estate asset classes, such as office and multifamily, are 44% and 45% institutionally owned respectively.[viii]
This means the overwhelming majority of BFR communities are owned by “mom and pops,” with over 80% of owners having fewer than 10 units under their control.[ix] This shows a great deal of room for institutions to play a bigger role in the ownership and development of single-family rentals, such as build-for-rent communities, adding much needed housing supply across the United States.
Capital Square’s Response to the Latest BFR Data:
As an owner, builder and manager of best-in-class rental housing properties across the United States, Capital Square is well-positioned to continue growing its portfolio. The majority of Capital Square’s BFR footprint is concentrated in top-performing markets in the Southeast, Sun Belt and Mountain West.
We are often asked, “What if mortgage rates return to 3%?”
Examining numerous major multifamily markets and the cost-to-own versus the cost-to-rent at a 7% mortgage and 3% mortgage, we can see that even in the 3% mortgage scenario, each of these major markets remains more expensive to own that rent.[x]
Data-driven investment decisions are at the forefront of everything we do at Capital Square. This is one more way we fulfill our mission to raise capital, buildings and expectations.
Explore our portfolio and open offerings to learn more.
[i] CBRE, 2024.
[ii] NAHB, 2024.
[iii] CBRE Research, CBRE Econometric Advisors, Census Bureau, January 2024.
[iv] CBRE Research, CBRE Econometric Advisors, Freddie Mac, U.S. Census Bureau, Realtor.com®, FHFA, July 2024.
[v] CBRE Research, Yardi Matrix, July 2024.
[vi] John Burns, 2024.
[vii] “Built-to-Rent Residential Market Overview,” CBRE Research, September 2024.
[viii] “The U.S. Commercial Real Estate Investable Universe,” Clarion Partners Research, October 30, 2024.
[ix] Census Bureau; JBREC public records data; John Burns Research.
[x] John Burns Real Estate Consultants; Greenstreet, 2022.
Disclosure: Securities offered through WealthForge Securities, LLC, Member FINRA/SIPC. Capital Square and WealthForge Securities, LLC are separate entities. There are material risks associated with investing in DST properties and real estate securities including illiquidity, tenant vacancies, general market conditions and competition, lack of operating history, interest rate risks, the risk of new supply coming to market and softening rental rates, general risks of owning/operating commercial and multifamily properties, short term leases associated with multi-family properties, financing risks, potential adverse tax consequences, general economic risks, development risks, long hold periods, and potential loss of the entire investment principal. Past performance is not a guarantee of future results. Potential cash flow, returns and appreciation are not guaranteed. IRC Section 1031 is a complex tax concept; consult your legal or tax professional regarding the specifics of your particular situation. This is not a solicitation or an offer to see any securities. Please read the Private Placement Memorandum (PPM) in its entirety, paying careful attention to the risk section prior to investing. Diversification does not guarantee profits or protect against losses. Private placements are speculative.
