What are Build To Rent (BTR) Investments?

Welcome to Canada's Property Management podcast, your number one resource for investing, managing and maximizing the value of your real estate assets. And now here's your hosts, Carla Browne and Adrian Schulz, Canada's rental property experts.

Carla Browne:

Okay, let's talk acronyms.

Adrian Schulz:

Not another one, but you'd learned a new one last week.

Carla Browne:

Yeah, I know. I actually... I like acronyms. Not sure if he knew this about me, but there was a point in my life that I worked with financial institution but on the real estate side and financial institutions, acronymize, I don't know if that's the right terminology, everything.

Adrian Schulz:

Yes.

Carla Browne:

Everything has an acronym in the financial institution world so I actually got to know a whole bunch of them and then... This actually could go in all different ways because then when you have teenagers, wait till your kids are a little bit older, you learn a lot of acronyms because that's how they talk. They shorten everything through text, right? Then all of a sudden you've got to learn a whole bunch of different things. But okay, totally going off in a different direction. Back to our podcast. Acronyms. We have all of these SFRs, single family Rentals. We talk about-

Adrian Schulz:

MFR.

Carla Browne:

MFR, multi family Rentals. And now the new one that's really been surfacing is the BTR and that's the Build-

Adrian Schulz:

Is that like a BLT?

Carla Browne:

Totally different. Totally different. Are you hungry?

Adrian Schulz:

I am hungry. I notice I'm getting a little testy. I must be hungry.

Carla Browne:

It's almost lunchtime as we're doing this podcast, yeah. This is something that's really been coming in the US. It's huge. If you go into countries like Australia and into Britain, this is something that's been going on for years too, where you have developers who are now going into this single family space building built Build to Rent rentals, which is what we always refer to as the purpose-built rental on the multi family side. It is designing single family homes and town homes the same way that we used to just design apartment buildings and that is to put a renter in. There's a lot of key differences. I know you come from that multi space and you had done some purpose-built rentals in the past, so I thought this would be a good one to pull out of your mind. What do you see the advantages? I see lots of them when it comes to the builds to rent when you're actually building instead of just buying a home and then renting it, that there's so many advantages. But you tell me what's on your mind there.

Adrian Schulz:

The first thing that comes to mind is that the fit and finish on a built to rent product is going to be significantly different than if you're building a custom-built home that you're going to live in or you're buying and renovating. You've got this really interesting opportunity when you're building to rent to build very specifically for tendencies and tenancy turnovers and longevity of the products being used. But you also, and especially once you do more than one, I have seen many successful build to rent developers or builders actually use very similar floor plates that they know tenants like and that work really well for a large spectrum of the resident tenant crowd.

I think you've got a lower... I actually think you have a lower cost of construction on built to rent, not meaning lesser quality. I'm meaning the type of products that you use are just different and you're going to use standardized, for example, Delta or WallTech hardware on your shower and on the sinks, et cetera, because when they break, you need to be able to go to the local hardware store to buy the replacement parts. When you go, for example, a Delta shower hardware versus a Kohler, you're probably talking like a $500 to $800 difference. It's all those little bells and whistles that make a big difference in cost of construction. But you want readily available products being used for when you need to maintain that rental. That's the first thing.

Then the second thing I think is the layout, right? People want laundry on the main floor. 100%. Well, if you're putting it on the main floor, do you raise the property a little bit so you can really start designing is a single bungalow become immediately a duplex by smart planning?

Carla Browne:

Yeah, I think the maintenance part is interesting and I think you can maximize this space. Like you said, the layout's so much differently than when you buy, especially in a single family home and then you turning it into a rental. If you have to ever do modifications or renovations, it's actually more costly than it is just to build it. The other thing that comes to mind is that the long-term maintenance in trying to be preventative, much easier when you have 18 or 25 units. I don't know why I used those numbers. They're kind of odd numbers, aren't they? But anyways, 18 or 25 units that all are built at the same time then you actually can budget yourselves much differently as you know when things are going to have to happen because those maintenance items are going to have to happen at the same time.

Whereas if you're an investor that's buying over here and over here and over here, it becomes a little bit different. The flip side is there's a little bit of a risk on market because you could be putting all your eggs in one basket. You need to weigh that out and where you're going to be putting that. That's where I think you need to rely on maybe some professional advice as to what areas have a history of being good rental markets or the reasons why. That's a whole different topic to go into. I do think that there's a lot of advantages to it. I'm watching it in the US, Adrian, and I'm just seeing... I'm reading article after article after article where developers have stopped developing to sell primarily because they're not selling. They've had to stop for that purpose, but they're able to develop to rent. If a developer has the funds to be able to do that, they are going to be able to help Canada with this housing affordability and housing crisis that we're in.

Adrian Schulz:

There are a lot of government incentive and lender programs that are designed with knowing that a lot of developments may have originally been planned for sale. That could be single family or condo, multi family, et cetera. Those programs are specifically designed to assist and help a developer switch track, go on a different track, and go down the rental track. There's longer amortizations available for those type of projects. There are incentives if you have a percentage of your rental units being more affordable rent. There are in some jurisdictions financial incentives being offered. There's a lot of opportunity right now in the built to rental market, both in single family and multi family. When we talk multi family, let's be clear. That could also be a duplex, a triplex and a fourplex for which there do still exist traditional, good old-fashioned mortgage programs. You don't have to go in down the path of commercial financing right away.

One, two, three, and four all qualify for charter bank traditional residential mortgage programs. Knowing that the shortage that we have in housing, I'm very appreciative and excited about the programs that are currently available and even more programs coming down the pipe. I would strongly encourage our listeners to check with your civic government, your provincial government, and the federal government programs in addition to talking to a professional realtor, a licensed mortgage broker, et cetera. Because in your areas, they're going to have some very unique expertise and insight to what programs and products are available in your local market and your property manager of course.

Carla Browne:

Yeah. Great points. I focused on developers should look at this, but you just brought something to light before we close this one off, that this is not just for big developers. As an investor, you think that the best way to get into investing real estate, or the only way maybe, is to talk to your realtor and buy a single family home. You could be buying a lot and building a rental property, which isn't going to cost you anymore given that the incentives that happen to be out there, and you might be better off in the end. I don't think that this acronym of BTR is going anywhere.

Adrian Schulz:

No, it's only the beginning.

Carla Browne:

Yeah, and just coupled with the fact that we have a lot of land space in almost every municipality so I think there's lots there. Anyways, we'll end this one. I think that it's one that developers, small and large, need to be looking at, and that is real property management.

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