The real estate market has witnessed a significant transformation in recent years, with the emergence of build-to-rent. This innovative approach to housing offers attractive benefits for tenants, developers, and investors. Build-to-rent, also known as BTR or build-to-lease, refers to the construction of purpose-built rental properties designed and developed specifically for the rental market. These developments are designed to provide high-quality, amenity-rich living spaces that cater to the evolving needs and preferences of modern renters.

Almost all of the major homebuilders are getting into the build-to-rent game. For builders and investors, build-to-rent communities offer the potential for stable, long-term income streams. To be successful in the build-to-rent market, builders must master the art of appealing to renters while maintaining affordability. In this article, we’ll explore a few challenges of build-to-rent for builders.

Market Analysis and Land Acquisition

The profitability of any build-to-rent project begins with market analysis and acquiring land. High-interest rates and scarcity of land require developers to be extremely cautious during this stage. Understanding the local rental market, demographic trends, and economic indicators is crucial in determining the potential demand for rental housing. 

Equally important, conducting a detailed site analysis of the land to determine development costs. This is necessary for both raw land and finished lots. By thoroughly assessing factors such as topography, soil conditions, drainage, and access to utilities, developers can accurately estimate the expenses involved in site preparation and avoid unknown surprises. 

Zoning and Entitlement

Despite the benefits, the concept of build-to-rent is relatively new, and not all local communities are supportive. With a unique mix of the single-family concept and multifamily operations, local municipalities are adjusting to how planning and zoning should work. Builders need to work with local officials and municipalities to educate them on the many values and benefits of affordable housing through build-to-rent. Maintaining transparency during planning and throughout the project is the best way to ensure everyone is on the same page.

Combating Material Prices

According to the National Association of Home Builder’s 2023 survey of top significant problems for builders, material prices were the most significant issue for builders in 2022 (cited by 96% of builders), followed by availability and timing to obtain building materials (cited by 86% of builders). Both problems topped the list in 2021 as well. Some builders are implementing nontraditional materials and methods, like 3D printing, to reduce material costs.

Designing Cost-Effective Homes

To maintain affordability for renters, builders must focus on designing efficient and cost-effective homes. This involves optimizing floor plans to maximize usable space and using innovative technologies that reduce maintenance and operational costs. Many builders are installing solar panels, LED lighting, Wi-Fi thermostats, and energy-efficient windows to help reduce monthly utility bills for tenants. 

Controlling Construction Costs 

Build-to-rent projects require builders to operate as lean as possible to be profitable. There is little to no room for unexpected cost overruns. The 2022 Cost of Construction Survey reported that the average construction cost of a typical single-family home is about $392,241 or about $153 per square foot – the highest in the history of this series. 

To control construction costs and maximize profit margins, builders should actively seek ways to streamline their processes and minimize the risks associated with rework and delays. Effective project management, seamless coordination, and open communication are vital throughout the entire project, involving the project team, contractors, and stakeholders alike.

Maximize Profits with Technology 

In the competitive market of build-to-rent, technology is essential for maintaining a competitive advantage. Trusted by 9 of the top 10 homebuilders, TraceAir empowers builders to operate with extreme efficiency, proactively reduce risk, and maximize profit margins. TraceAir provides a comprehensive solution for managing site development, tracking progress, and facilitating collaboration.

Schedule a demo today to see how it works and learn how your projects can benefit from TraceAir.