In recent years, build-to-rent investment has emerged as a new real estate investment option with significant growth momentum. However, while providing development potentials, build-to-rent properties also involve unique risks. This article analyzes the build-to-rent investment landscape and evaluates its opportunities and challenges for investors.
Build-to-rent meets demands and favors early movers
The build-to-rent sector has expanded rapidly to meet the structural housing shortage in major cities like London. Early institutional investors in this area have achieved lucrative returns. However, as competition intensifies, the sector is moving toward stabilization with moderating yields. Investors need to factor in compression risks when acquiring new assets.
Management expertise is vital for optimizing rent levels
Unlike traditional buy-to-let, build-to-rent properties require professional managements to maximize occupancy and rental income. Investors without operational experience should either partner with experienced operators or acquire assets with existing management in place. Hands-on management also allows investors to respond quickly to market changes.
Large-scale properties diversify risks but limit exit options
Owning a portfolio of build-to-rent assets across locations can mitigate tenant credit risks and income fluctuations. However, large multi-family buildings cater only to rental demands. Selling individual units like traditional apartments is not feasible. Investors should be aware of this liquidity risk when planning holding periods and exit strategies.
Build-to-rent investment provides opportunities but also exposes investors to unique risks around growth prospects, operations, and liquidity. Carefully assessing one’s expertise and portfolio strategy is key to successful investing.