Build to rent is a relatively new trend gathering a lot of interest from players in the UK housing and property markets. It presents new and exciting opportunities in this thriving sector, and many investors are starting to take note. Anyone unfamiliar with the concept may wonder what is so special about it, how it operates, and why they should be paying attention. This article is a guide to the build to rent sector, covering what you need to know and what it entails.
A Brief History Of Build To Rent
The excitement around build to rent can be traced back to 2012 during the Olympic Games when the athlete’s village was set to be converted into homes. That development led many investors to take note and it inspired some to follow the same approach to investing in rental properties.
What Is Build To Rent?
As the name suggests, build to rent (BTR) describes residential properties explicitly built to be rented instead of being sold to other investors or homeowners. All the housing units are owned by a single landlord, typically a company, instead of many landlords, with these properties focusing on tenant experience and the developments following specific management, sustainability, and design guidelines.
These companies that function as landlords aim to build and manage long-term investments that are stable, secure, and attractive to tenants. The benefit for the tenants is that they get to live in new properties that are well-furnished and in the best locations.
BTR companies are also investing heavily in facilities and amenities, including game rooms, communal spaces, concierge services, parking spaces, gyms, and others, to make their properties even more attractive. They plan all these in advance, understanding that people will want to live in their properties longer if they have everything necessary within the property or close to it.
The investors bank on the fact that the attractiveness of their properties and locations will increase in value over time.
Who Lives In Build To Rent, And Who Are These Properties Built For?
The target for build to rent is very broad due to the changing circumstances of renters. Millennials, who are the most likely to be attracted to these types of properties, have little hope or wish to buy homes in the future. Most cite the prohibitive cost of houses, while some say they do not see the value of tying up their money in physical structures where they will only recoup it after a significant period.
Millennials also say they do not feel secure in traditional housing arrangements typically driven by landlords. Landlords can ask them to move out or sell the properties outright, leaving millennials feeling like they are settled in such properties.
Built to rent London properties can solve many of these challenges and uncertainties. Even with its ability to do so, the market is still very young. Data from 2022 shows that only about 1-2% of properties in London are BTR, even though a lot of progress is being made in the city due to the housing crisis being more severe there.
The Fundamental Pillars of Build To Rent
Certain fundamental pillars are common in all projects regardless of the specific owner and operator arrangements in build to rent properties.
The first pillar is investment. Rent to build provides investors with fantastic investment opportunities. Several options are available to investors who want to learn how to invest in build to rent. These include:
Forward funding where the development is financed by a fund that acquires land from a developer before the property is rented and where the development has not started. The developer completes the projects using the provided funds and then hands the property back to the fund after being paid a profit for their work.
Joint ventures where two or more entities invest in a property together.
Co-investment is an arrangement where investors take an ownership stake in a company depending on the percentage of their investment. In these arrangements, a single firm handles the development, and other investors become minority shareholders in the business.
If you have limited funds and want to invest in apartments in London, you can always invest through Real Estate Investment Trusts (REITS). REITs allow you to own shares in properties as you do in companies and receive dividends or final payment, depending on the agreement.
Design and Architecture
The design will depend on who the build to rent scheme is targeting since each development is meant to create a unique community with unique needs. The difference in design is mainly seen in amenities that provide tenants with the quality of life they seek.
Management is critical in ensuring tenants have a great experience and stay in the property as long as possible. While property owners can invest in staffing, security, and maintenance that ensure great tenant experiences, they can also hire property management companies like UpperKey to manage their properties.
Upper Key will become the primary tenant, managing maintenance, marketing, and ensuring high tenancy rates while the property owner gets regular monthly revenue. Finding the right people to ensure profitability can be challenging; this is why many owners choose property management companies.
Property and Investment Longevity
Anyone who invests in London built-to-rent properties wants their investment to last as long as possible. Development longevity in the modern age depends on how well a development retains its value. This value retention is typically tied to sustainability under Environmental, Social, and Corporate Governance (ESG) practices, which are crucial for the profitability of short and long-term investments.
Players in The Build To Rent Sector
There are several players in the build to rent London sector. There are council members, officers, and the electors who put them in office. They all understand the level and impact of housing shortages in their areas and are finding ways to deal with the issue.
Then, we have the investors and those who want to invest in built to rent flats London and similar properties. All of these people put money into BRT developments and see an opportunity for wealth creation and profitability both in the short and long term.
All these players can work together to ensure this sector continues to grow and spreads in other areas. If they can achieve this, they can ensure that many more people have access to housing while also opening up a new investment option for numerous investors interested in real estate who will see a great return from their properties.
Build to rent is relatively new, but it presents excellent opportunities for numerous players. Stakeholders can sort out housing shortages in the areas under their control, investors can make a profit. Tenants get new, well-furnished properties to live in as well as the stability such environments provide, and management companies like Upper Key ensure property owners have a consistent revenue.