There are many different models for making money in property.
A relatively new one of these is build to rent.
Read on to find out what build to rent is, its pros and cons, and whether it’s right for you.
What is build to rent?
Build to Rent (BTR) is a development that has been built with renters specifically in mind.
It is typically paid for by a major property development organisation and aims to offer renters in the area a higher-quality experience.
Build to rent aims to combat many common challenges of renting a property, such as:
- Short leases
- Lack of communal facilities
- Lack of support staff working in the building.
Instead, these developments aim to create a sense of community and guarantee the property lease is always long enough to give the tenant peace of mind.
Build to rent vs. build to sell
Build to rent and build to sell (BTS) are different property development strategies.
Build to rent properties are constructed specifically for the rental market. Developers retain ownership and generate income through long-term leases.
Conversely, building to sell developers profit from the one-time sale of each property. This model is more susceptible to short-term market fluctuations, which can be a positive or negative factor.
How common is build to rent?
Figures from the British Property Federation state that there are over 250,000 build to rent houses in the UK, with just over 78,000 of these fully complete.
This is still a small fraction of the total UK property market. But it is a sector which is growing, with companies such as John Lewis and Legal & General investing heavily in developments in recent times.
Advantages of build to rent
Community building
Build to rent developments usually have a strong sense of community.
All the people living there are in close proximity to each other and tend to be from similar socio-economic backgrounds.
The development will often host events that bring all the residents together, creating a great way to make new friends.
High-quality facilities
With recently developed Build to Rent properties, the facilities are typically superb.
These include a number of facilities that help tenants to work, relax and play, such as:
- Communal gyms
- Gardens, roof terraces
- Lounges
- Coworking spaces.
Good customer service
Customer service for renters living in a build to rent development is usually excellent, too.
There is often a concierge that supports residents in any way they can, and tenants will also receive other amenities such as:
- WiFi
- Building maintenance
- Vehicle storage
- Security guards and systems
- Parcel lockers.
And more.
Relatively long-term tenancies
Lastly, many build to rent developers will offer a tenancy agreement of 3 years (or more) to renters.
This gives the people living there the security that they will have a stable home for three years and won’t be kicked out anytime soon (unless, of course they are problem tenants or otherwise break tenancy agreements).
Disadvantages of build to rent
High cost
The numerous facilities and amenities of build to rent developments means that it is not always an inexpensive option.
A report from JLL found that build to rent costs 12% more than the average market price for tenants in any given area. Therefore, while it comes with lots of exciting, convenient features, you will need to pay more to stay there.
How expensive is build to rent?
Research suggests that the average build to rent tenant spends 30% of their income on rent. This is in comparison to 33% of income for the typical private rental tenant.
The monthly rent on a build to rent property will vary significantly depending on its location in the country.
For example, lots of BTR developments in southeast London and Kent are between £1,500 to £2,000 per month. It will tend to be considerably cheaper further north in the UK.
Lack of character
Another common criticism of build to rent properties is that they ‘lack character’.
Almost all of the buildings have been purposely designed for mass renting. So, if you’re looking for the aesthetic look of a period property, you will likely be disappointed.
Noise and lack of privacy
Some people do not enjoy living in such close proximity to other renters, as is typically the case in a build to rent development.
For sociable or extroverted people, this can be ideal, but if you enjoy peace and quiet without bumping into others on a daily basis, then it might be better to find a property slightly less ‘in the thick of things’.
No option for buying
Currently, there is not an option in most Build to Rent developments for the tenants to purchase their property.
By contrast, it is not uncommon for landlords in ‘typical’ rental units to give their tenant the first opportunity to buy their apartment, before it goes on the market.
Therefore, some argue that Buy to Rent does not provide a clear pathway to helping its renters get onto the property ladder.
Why is build to rent needed?
There is a growing need in the UK for additional short-term housing options. Build to Rent offers a solution to this.
It is currently estimated that the need for additional housing in the UK is between 232,000 and 300,000 units per year.
A build to rent development typically makes excellent use of square footage. It provides hundreds of new homes in the same building.
Most UK renters are in the 16 – 34 age range, and many of these people take several years to raise a large enough deposit to buy a house themselves.
In the meantime, as they try to save up enough for this purchase, build to rent offers a high-quality living situation. They can often live close to a city centre and enjoy being sociable throughout their 20s.
There are also steps being taken to make build to rent slightly more affordable.
The UK Government’s guidelines recommend that all build to rent developments should have 20% of the site designated to affordable housing.
A local authority can increase this percentage, if they wish, before they grant planning permission for a development.
