What is build to rent?
Build to rent describes properties that have been designed for rent rather than sale. The developments are usually owned by companies and let directly, or via an agent.
It’s a fast-growing market that offers property investors residual income as well as capital growth from owning the property.
The build to rent sector is growing
According to Forbes, there are a growing number of build to rent schemes coming to market. Q3 figures for 2018 showed 131,855 build to rent units either completed or planned across the country. These included 25,665 completed, 41,870 under construction, and a further 64,320 with planning permission. 1
Savills research shows the sector has expanded rapidly in recent years. As of March 2019, there were just over 30,000 completed build to rent homes in the UK according to Savills/British Property Federation data. An additional 110,000 in the pipeline will be built, let, and managed by professional investors. 2
Locations for build to rent developments
So far, the capital has been the most popular location for build to rent investors. However, more developments are now being planned in various regions across the country. Manchester, Bristol, Leeds and Glasgow are other cities likely to be targeted by build to rent investors.
This year, on the south bank of the River Clyde in Glasgow, Legal & General forward funded Buchanan Wharf, a 324-apartment scheme. This was the first forward funded build to rent deal in Glasgow. It was also Scotland’s first transaction involving a purpose-designed rental project.
Significant capital is required
Although build to rent developments are no longer restricted to industry insiders, a considerable amount of capital is needed for such a project. It can be tricky to find funding, and you may need to allow only long-term tenancies in order to provide security for your investment.
Build-to-rent typically offers a complex of modern design with onsite facilities such as gyms or swimming pools. As this is a community for renters, there’s often a public space for socialising.
Build to rent tenants are generally looking for flexible tenancies, no letting fees, predictable rent increases along with professional management. They’re willing to pay more in rent in exchange for higher quality amenities.
Making build to rent work
As with any property investment, it’s all about location. Tenants will be looking for good transport links and other local facilities. The significant difference with build to rent properties is that you can take advantage of locations where tenants will want to live but wouldn’t be able to afford to buy.
However, the premises has to be attractive to renters and offer extra amenities they won’t find in a standard buy-to-let. These amenities need to be costed, assessing how much continuing operational costs will be and if they’re worth it for what they’ll bring to your community of tenants. A key factor in build to rent is to create a sense of community as this gives tenants more incentive to stay put.
Companies also need to consider ongoing management. Will there be an inhouse management team to take care of maintenance and administration? Or a letting agency willing to take on the project?
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