The build-to-rent model is well established in the US and taking off in the UK but is just emerging as a viable way to improve housing security for tenants.
It involves the development of multi-unit residential buildings as long-term rentals, typically owned by institutional investors. Everyday investors can invest in a build-to-rent (BTR) development by purchasing shares in the fund or company that owns it.
It’s a different proposition from owning one or more houses and renting them out, either on your own or through a property manager. You need to be prepared to give up some autonomy over your property and the lure of quick capital gains in exchange for less hands-on maintenance and steady returns that increase over time.
Another benefit for investors is that BTR properties attract higher rents due to extra facilities like gyms and swimming pools, and the services of a dedicated property manager. What’s more, you don’t need a deposit of hundreds of thousands of dollars to own a piece of this property.
New builds attract good quality residents, and the security of a long-term lease means tenants are more likely to treat their apartment as if they owned it. Maintenance issues should also be minimal in new, high-quality builds.
BTR properties are often pet-friendly, and the tenants can make minor modifications to their apartment. With no rates, insurance, mortgage, or maintenance to worry about, it’s an appealing option for many would-be homeowners who are currently priced out of the market.
It’s not just young people who are renting, either. Some retirees are choosing to sell the large family home and move into a conveniently located development where they can enjoy community facilities and mingle with neighbours of all ages.
This model of residential investment and tenancy is just starting to gain momentum in New Zealand, with the first large developments completed and more in the pipeline.
Investment company New Ground Capital has initiated the development of 543 new homes in Auckland and Queenstown, of which 321 are being retained as long-term rentals and managed by its property management arm.
And in September this year, Kiwi Property announced it would build 295 apartments at Sylvia Park as long-term rentals.
Investing in BTR developments is not a short-term proposition, but if you have the patience for a stable and low-risk property investment with social benefits, this could be worth adding to your portfolio.