Build To Rent Communities – Hurting Home ownership

Build to rent communities. Otherwise known as BTR.

Are they hurting home ownership? Yes, they are. What is going on with them? Why are they popping up everywhere? Is it profitable? Should you be doing it?

Do you want to buy into one? What’s going on? We’re going to have to discuss that and more. We have a supporting article that we’re going to go ahead and put up here and we’re going to talk about it just a little bit.

Yeah. So tell us what these are. You know, we’ve talked about them before, but refresh our memory on what the beaters are. You guys might start hearing them.

So that’s a crazy picture you see right there. I don’t even know what the heck that is, but it’s build to rent, meaning that the builders are going in and putting in a whole neighborhood with the whole idea of building them and not selling them, but renting them and collecting the cash flows, the monthly cash flows for the rent and selling this as a collective group, a much larger sale to somebody else, right to some investment firm or managing this income as it comes in and holding the whole property. The whole community. Right. Is a is a package, a portfolio for later on.

Are they doing this because the prices have skyrocketed and maybe they’ve lost money? What is the appeal? I know it’s an appeal to investors.

Yeah, no, it’s a money thing for sure. And it’s also kind of a control thing. So let’s look at it from that perspective. If all of a sudden you have and as we scroll down, we can see some different things that’s going on all over the country.

You can see the names of the communities. You can see that it’s skyrocketing and how many of them are going on. You can see that there’s new home builders that are getting involved and you can see the names of the builders. Yeah. Taylor Morrison jumping into it.

I think I was.    Tell reporters is what they are. No, a bunch of ones locally are starting to move to this. Right. So this is a model that is definitely, definitely coming. Wow. But why is it happening?

So think through if things are if there’s supply issues and you can’t get certain things right and somebody is super picky and like a one off, like I really need blank whatever it is, this refrigerator, this, you know, this cabinet that but there’s substitute items that could be used for it. So when you have a super picky person, it caused a lot of problems. But overall, if you’re putting together 300 units.

Then when people don’t have a choice, it doesn’t matter when they have a choice, yes matters.

So they’re making all the choices for them. So everything’s getting done. You’re like, We don’t have that colour. We don’t have that material. Fine, make a substitution done, move on. And they’re not having to deal with that. So they don’t have to deal with 300 buyers that are super picky about their home. Right.

That it has to be perfect. They just fly through them and put them in and make some kind of, you know, a lot quicker. Yeah. And so now they don’t have to worry about that. They’re worried about price and worried about getting it done on time and putting the whole community together so they can go super fast.

Very similar. There was a community in Long Island that kind of started this. I think it was 11 town where they just like went through and put up home after home after home. And that was in Long Island, the initial start of the suburb, after people came back from from the war. And this is almost the same thing, except they’re not for purchase, they’re made for lease.

But they’re they tend to be more of a luxury product. Yeah, well, I mean, that’s what depends.  

Well, let’s look right here. So yes, in the way that a Cheney unit is a luxury apartment, then these homes, these luxury these are luxury homes as well. The company estimates that it can build each home for 65,000.

Yeah. Or about 160,000.Probably not going to have the bells and whistles.

Well, so maybe luxury and whatever. But they’re trying to sell them. Right, and trying to move on quickly. So what it’s trying to do is it’s trying to build these in mass and they’re focusing on the structure being structurally sound and they don’t really care about the stuff inside of it. And so they said they’re not worried about the carpet that’s in it. They’re worried that the foundation and the walls are going to be structural.

They’re worried that the roof is not going to leak. They’re worried that the building envelope is secure and they’re not worried about the carpet because the carpet is going to be changed. It’s going to be spilled. It’s going to be right. It’s going to be problematic. Right.

So they’re doing this to collect the rental income and then sell it all off later on and not have to worry about it. There’s no sales process here. They have one buyer buying the whole thing. It’s a conglomerate getting done.

It’s crazy. You know, you think about, you know, people have communities and homes we talked about yesterday restrict rentals and things within a community. So just build it and do it as you as you want. You know, I think about who this will appeal to.

And, you know, if you want to live downtown, you want to live downtown Dallas and you want all these amenities to walk and do all these fun things, but you don’t want to buy a condo or you don’t want to purchase. I guess it appeals to that person, but. Well, sort of the American dream.

Well, so here’s the problem with this, right? Is what they’re doing is they’re going in their minds to find cheap land, that they can do this in mass because it’s all about the land around here.

I know. But they’re moving it further out from wherever the city center happens to be, letting everybody commute and they’re not worried about amenities. So these places don’t have an extra large park. They don’t have all those things. It’s just like straight, no frills. Get down to it, build the place.

Here’s your domicile and there you go. And it’s about money. And when they do that, they’re taking all of these people 100% away from building new homes that people can actually buy. And you’re going to see a huge, huge shift and a huge issue with this later on, because these are totally built in one quality style.

Right. They’re going to have a really hard time appreciating or going up in value over time with this with Unit 105 being very different from Unit 403 that’s in this community. Right? So they’re going to have a price appreciation problem within the neighborhood. I don’t think that is going to affect a comp on something else because they’re dramatically different.

Lot of things that it it eliminates, right. Yeah. Have hurdles that it eliminates. I just I don’t see if you don’t have amenities and you don’t have the appeal and they’re going to be outside, so you’re going to have to commute. I don’t know. I don’t know you guys. I think this is going to be a big market shift. And I just don’t know that it’s going to. Work. I don’t know.

I just well, work it’s going to work for the investor.

And so it’s completely different from multifamily that we know it. Rental communities as we know it, they’re not competing. So they’re a totally different product.

But it’s not really a home. It’s weird and it’s unique.  It is. They’re stand alone.

They’re small and tiny. They’re little patio homes, I guess. I wonder if you could ever have the option to purchase.

Well, at some point they are going to be sold, right? The market’s going to turn and then they will be sold. But the idea is that they sell them later on, but probably to another big investment firm that manages them and continues it up the line. And then they’ll probably upscale them, redo them, whatever, and they’ll be like class A build to rent communities that are all rented.

So anyways, I think that’s about enough on it, but it is going to be a difficult thing if everybody right, all of the builders are getting into this because you’re getting they’re earning much more money. They’re eliminating they have one buyer instead of hundreds.

Right. Much different. And with all these people getting into it now, we don’t have the traditional home builder building homes for traditional families. And so the supply issue is going to become a real problem with it getting so constrained. You take half of the builders in the country and put them on to this type of product and the trades and everything else. Now you’re not going to be able to get another home built.

So it’s kind of curious, slow down to the cities, the municipalities, to see how they view these. If it’s an SFR, which is single family residence as we know it, but this could be a single family rental. So is the zoning going to be different? How are you going to identify?

You know, I don’t know. Are we going to all of a sudden. Yeah, we totally need to put this in as a new field in MLS, right? Yeah. So it is because it was made as a build to rent community. So there’s a whole vernacular change is going to have to go on around this later on. Yeah, so it goes. Ladies and gentlemen.

Episode Links

Taylor Morrison, BTR, MLS, Mike Acquisto , Shana Acquisto , TNT 

Episode Recorded Live on YouTube 03.31.22

This & That

View all posts