As rising home prices continue to make homeownership unaffordable for many, demand is increasing for rental homes, creating investment opportunities in the single-family rental build-to-rent (SFR BTR) sector.
The BTR segment produced $2.2 billion in transactions last year, despite a decrease in acquisitions of BTR communities with 50 or more units over the past two years, according to a Yardi Matrix report. The sector continues to gain traction within multifamily and has drawn interest from institutional players and private equity firms. AvalonBay Communities acquired 126 BTR homes in Bee Cave, Texas, for $49 million, and plans to invest $1 billion in the sector going forward, the report said. Blackstone, Invitation Homes and Pretium Partners are among several big Wall Street firms expanding their BTR portfolios. In addition, JP Morgan partnered with Georgia Capital and Paran Homes to launch a vertically integrated BTR development firm focused on new construction in the Southeast.
There are 20 million single-family rentals across the United States, about 4% of which are owned by institutions and 340,000 of which are in BTR communities. The sector is benefitting from remote work trends, causing increased space requirements in homes to accommodate remote work, as well as accelerated demand in suburbs and exurbs, said the report.
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At the same time, homeownership costs, including monthly mortgage costs, insurance, taxes and maintenance, all continue to rise and outpace the cost of renting nationwide. The report said the average mortgage payment is nearly $2,600 compared with the average monthly rent of nearly $1,800. Renting is cheaper than purchasing a home in nearly half of Matrix’s top metros.
In addition, the segment suits the rising population of Millennials who are creating households and moving out of apartments, renters by choice and empty nesters seeking flexibility and a low-maintenance lifestyle. According to the study, 31% of BTR tenants were previous homeowners and this ratio was much higher among older families with children and older singles and couples.
The most popular amenities for SFR BTR communities are on-site maintenance, better parking, storage, privacy and exclusive outdoor space. Communities with pools, green space, walking trails and dog parks are also desirable, the report found. Smart home technology, including keyless entries, Wi-Fi thermostats, leak detectors and smart doorbells, are also considered must must-have amenities.
Homes in this category are increasingly being designed with features that accommodate frequent moving and streamline maintenance, including durable building products, wider hallways, and standardized appliances and fixtures.
Midwest markets are experiencing strong SFR BTR rent growth, led by Detroit, Kansas City and Minneapolis/St. Paul. Harrisburg, Pennsylvania, is a top performer in the category with 4.1% rent growth year-over-year in April. Cleveland and Columbus, Ohio, both posted 3.7% rent growth and Kansas City experienced a rise of 3.5%.
SFR BTR occupancy is higher than multifamily in most of the markets Yardi Matrix tracks, including Raleigh, the Inland Empire, Las Vegas and Indianapolis. The firm noted SFR BTR supply peaked last year at 41,400 units delivered and has started to cool this year. About 35,000 units are expected to be delivered this year, 29,200 in 2026 and 19,500 in 2027. Units with three or more bedrooms are now more popular than those with two bedrooms or less, according to the report.
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Kristen Smithberg
Kristen Smithberg is a Colorado-based freelance writer who covers commercial real estate, insurance, benefits and retirement topics for BenefitsPRO and other industry publications.
