Build-To-Rent isn't always the right decision for all builders.

In recent years, build-to-rent (BTR) groups have gained popularity as an alternative to traditional rental properties. These groups specialize in developing and managing rental properties, with the goal of providing long-term, high-quality housing options for tenants. However, despite the potential benefits of working with build-to-rent groups, many builders and developers are hesitant to do so.

One of the primary concerns that builders and developers have about working with build-to-rent groups is the potential loss of control over their projects. Typically, when a builder or developer completes a project, they sell the units to individual buyers who become the owners of the properties. In contrast, when working with build-to-rent groups, the builder or developer may be required to sell the entire project to the group. This can be a significant loss of control, as the builder or developer may have less say in how the property is managed and maintained over time.

Another concern is the potential impact on the builder or developer's brand. Many builders and developers have established themselves as providers of high-quality, luxury properties. However, build-to-rent groups often focus on providing more affordable housing options, which may not be aligned with the builder or developer's brand. By working with build-to-rent groups, builders and developers may risk diluting their brand and losing their high-end reputation.

Additionally, there may be financial considerations that make working with build-to-rent groups less attractive for builders and developers. For example, build-to-rent groups typically require a lower profit margin than individual buyers, which can be less appealing for builders and developers who are looking to maximize their profits. Additionally, because build-to-rent groups are focused on long-term ownership and management, they may be less likely to engage in speculative development, which can be a more lucrative option for builders and developers.

Finally, there may be concerns about the long-term viability of build-to-rent groups as a business model. While the concept of build-to-rent is relatively new, some industry experts have questioned whether it is sustainable over the long term. For example, if interest rates rise, it may become more difficult for build-to-rent groups to finance new projects. Additionally, if there is a significant economic downturn, tenants may be less likely to renew their leases, which could lead to increased vacancies and financial losses for build-to-rent groups.

We hear many homebuilders and developers complain about build-to-rent operators not keeping their word when they say they will buy homes. This disconnect is a function of improper and untransparent communication between all parties. Ultimately, builders and developers will need to weigh the potential benefits and drawbacks of working with these groups and determine whether it is the right choice for their business.