Here is When Building Homes for Rent Makes Sense

With approximately 12 percent of detached single-family households renting (14 million out of 124 million), about 25,000 single-family detached homes are being built for rent per year on average, according to research.

Analysis has shown that as a rule, build-for-sale homes typically generate greater profits than building them for the purpose of renting, despite the strong demand for single-family rental housing in the last few years. However, there are times when it makes sense to build single-family homes with renting in mind rather than selling, according to John Burns Real Estate Consulting.

The cases where building for rent are likely to generate cash more quickly than building homes for sale. Those cases include areas where the demand for for-sale housing is weak, such as in cases where for-sale neighborhoods might take years to sell out. Burns said it also makes sense to build single-family homes for rent in communities near new retail centers.

“Rental homes generally lease up very quickly and can bring needed customers to an area to help support a retail development,” Burns said.

Burns also noted a build-for-rent strategy which not only generates profits but also might bring in future homebuyers, and that is selling a for-rent land parcel to someone who won’t build homes to compete with the homes in the area that are for sale. It also makes sense to build for rent in areas to which many households are relocating.

“Often, relocating households prefer to rent for a while before buying,” Burns said. “They want to learn more about the area, and might even want to wait for more certainty in their job situation.”

The rise in the popularity of the single-family rental market in the last few years prompted The Five Star Institute to host its first ever Single-Family Rental Summit last year in Las Vegas. Now the Five Star will host its second annual Single-Family Rental Summit in Frisco, Texas, on November 1 to 3. Click here for more information or to register.

Editor’s note: The Five Star Institute is the parent company of MReport and theMReport.com.