Thousands of single-family homes are being built to rent rather than sell, The New York Times reports. More home builders and investors see it as an income-generating investment at a time when the pool of first-time home buyers is shrinking.
The percentage of homes built specifically as rentals was 6.2 percent in 2012 — a record high, according to Census Bureau figures.
For example, in the Atlanta area, a five-bedroom, three-bathroom new home that may have sold for less than $200,000 can fetch $1,300 a month in rent.
“New homes still command a premium with renters,” the Times reports.
For investors, a new home can offer “fewer repairs, lower maintenance, and it looks great to the tenants,” says Bruce McNeilage, the managing partner of Kinloch Partners, a Nashville-based real estate investment company that has been acquiring model homes in the Atlanta area to turn into rentals. “You can get maximum rents, and people are going to stay in them for a while because they’re brand-new.”
US Invest is one big player in the build-to-rent arena. It has options on 1,000 lots in Sun Belt cities. Colony, another builder, has 15,000 rental homes, about 1,000 of which are new.
However, some home owners say they’re concerned about investors turning their new subdivisions into neighborhoods of renters. They fear it will worsen property values.
Some firms say they try to avoid buying up blocks of rentals in one subdivision.
“We never do more than 20 or 25 percent of a subdivision — we like to spread it out as much as possible,” says James Breitenstein, CEO of San Francisco-based firm Landsmith, which has built about 1,000 homes for rent in Houston, Indianapolis, and Kansas City. “We don’t want them to become rental communities.”
A big question remains about how long investors will hold onto these new-home rentals until they decide to sell. In some markets, such as Arizona, the build-to-rent idea has already faded away due to rapidly rising home prices.
“Because of price appreciation and the market, it’ll make more sense to sell these just to home buyers,” says John Badura, owner of Invest Arizona, a company that builds and rehabs homes to then sell to investors.
Source: “Home Buyers Are Scarce, So Renters Take Their Place,” The New York Times (Dec. 4, 2013)