Single-Family Rental Series: Part III Where is Build-to-Rent Going?

It is no secret that the United States housing market has experienced historic volatility in the last decade. This has been reflected most significantly in the home-ownership rates among Americans. However, these economically turbulent times have not only affected lower-tier residents, but six-figure income households as well. The Wall Street Journal states, “In 2019, about 19% of U.S. households with six-figure incomes rented their homes, up from about 12% in 2006, according to a Wall Street Journal analysis of Census Bureau data that adjusted the incomes for inflation. The increase equates to about 3.4 million new renters who would have likely been homeowners a generation ago.”[1] Based on this data revealing a strong push towards renting, it evokes the question: Why is the percentage of renters increasing regardless of income level? Like other sweeping macroeconomic questions, the answer is not cut and dry. Rather, there are a myriad of fundamentals that are causing this shift towards renting – high home costs in coastal cities, student loan debt, preference for renting, and lifestyle choices all play significant role in driving this trend. With renting gaining such popularity, Watermark’s expertise in the B2R niche positions us nicely as the real estate market continues to adapt and grow.

As hard-working, successful professionals earning six-figure incomes become eligible for homeownership, other economic factors limit their likelihood of purchasing a home. Historically, this has not been uncommon in highly desirable coastal cities such as Los Angeles and San Francisco, or other major cities such as New York and Chicago where renting is king. The Wall Street Journal also notes that these specific markets only account for roughly 20% of six-figure renters.[1] Furthermore, as populations start to dwindle in Tier 1 cities, Tier 2 cities are growing at impressive rates. Below is a list of the Best Real Estate Markets according a study conducted by :[2]

  1. Austin, Texas
  2. Raleigh/Durham, North Carolina
  3. Nashville, Tennesse
  4. Charlotte, North Carolina
  5. Boston
  6. Dallas/Fort Worth
  7. Orlando, Florida
  8. Atlanta

With high levels of growth in these cities, real estate prices have soared, and homeownership is becoming less likely, even for high earning households.

However, home ownership decreasing does not mean that living standards or elegant preferences have fallen by the wayside. In this people driven trend, investors have taken a nuanced approach to fulfilling demand – resulting in Build-to-Rent communities. It has been said that “A market need on side is a market opportunity on the other.” Given this truth, investors have noticed these trends and taken to new construction innovations to meet the rising rental demand. It is not surprising that Build-to-Rent communities are surfacing all over Tier 2 real estate markets. With cities such as Dallas/Ft. Worth, Minneapolis, Nashville, Boise, and many more experiencing impressive population influxes, Watermark is proud to continue our quest as pioneers in the Build-to-Rent market. With developments underway in Minneapolis, Dallas, land under contract in Nashville, and other up-and-coming cities, we are being proactive in a highly reactive time.

Further proof of Build-to-Rent’s high probability of success is provided by CEO of institutional Real Estate investment giant American Homes CEO David Singelyn, “High earners also tend to stay put and are willing to absorb regular rent increases if it means not having to move their children to new schools. That translates to lower turnover and maintenance costs for the landlords. These tenants are treating our houses as if they are their homes,”[1] Build-to-Rent homes offer residents many of the amenities and luxuries they prioritize, which leads to, families staying in their homes for longer terms. From an economic perspective, this results in Single-Family Rental homes being a more stable and less responsive asset than the traditional multi-family investment. Stability delivers greater peace of mind for both the resident and the investor.

As migration to Tier 2 cities continues to occur, Watermark is equipped to provide Build-to-Rent communities to emerging markets across the United States. We are excited for the integral part that Build-to-Rent communities will play in the real estate market for the many years to come. With our communities in Maple Grove and Plymouth MN, experiencing high demand, and another community beginning to take shape in one of the fastest growing cities of the US – Denton, the forecast for Build-to-Rent is favorable.

Thank you for your interest in Watermark Equity Group and stay tuned for the final installment of our Single-Family Rental Series.

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