Built-for-rent (BFR) developments remain the hottest housing type, but investors struggling to find existing stock are moving to find land for new neighborhood development. Housing Economist Brad Hunter wrote in Forbes that land brokers receive 50 calls from BFR newbies for every one experienced BFR buyer. And when land is prime for a BFR development, brokers receive between 10 to 25 offers. Greg Vogel of the country’s largest land company, Land Advisors, tells Hunter that between 5% and 10% of all land sales are solely for BFR, but that share grows each month. And although larger investors may dominate the headlines, the majority of BFR sales come from lesser known firms. Hunter adds:
My company provides site-specific market studies to the firms that are investing in BFR, and the majority of our clients are companies the general public has never heard of, but that are starting to gain renown as they successfully lease up more communities within their markets. You’ll probably read about some of them over the next 18 months.
Different BFR land investors have different preferences. Some want to maximize density, aiming for 11 or 12 units per acre (typically pursuing the “horizontal apartments” strategy in that case), while others, like American Homes 4 Rent, only build traditionally-platted single-family homes, at densities closer to 4 to 5 per acre. Parcels suited to rental townhomes, with a density in the middle of those ranges, are in extreme demand.
Rental yields are starting to allow BFR investors to outbid the homebuilders. In our research, we have seen single-family rents rising by 7% to 10% a year over the past twelve months in many areas. Within a given BFR community, rents are being escalated at rates faster than this, particularly when a tenant moves out and the next one comes in. Single-family rents are often seen rising.