August 2023

This article is presented by Rent To Retirement. Read our editorial guidelines for more information.

Investing in real estate isn’t something that involves using just one strategy. The best strategy for you depends on the type of investor you are and the current market dynamics. In 2023, build-to-rent (BTR) is quickly becoming the most effective investment strategy for beginners and experienced investors alike. 

BTR gives investors the opportunity to purchase new construction properties below market value in growing locations. There are many advantages associated with using BTR to grow your investment portfolio, which include hardly any maintenance, builder warranties, substantial appreciation in growing markets, the ability to attract high-quality tenants, and more financing options. We’ve started using a unique portfolio lender that finances new construction rentals with as little as 5% down, with no PMI (private mortgage insurance) costs. It is creative financing options like this that have allowed us to expand our portfolio quickly in the BTR space, obtaining more properties with less capital down.

Now that the market is slowing down, many builders have a surplus of builds they began last year in anticipation the market would continue without slowing down. At the same time, rising interest rates have slowed down institutional buying in the BTR space nationwide. This unique combination of factors allows the individual investor the timely opportunity to purchase new-construction rentals below market value in some of the best markets throughout the U.S. If you know the right markets to look in, you’ll have access to inventory that wasn’t available a year ago when it was a red-hot seller’s market. 

Many of these new construction properties are available with immediate equity and appreciate quickly if you are in the correct market. This allows you to be able to access equity quicker than you otherwise would during different market conditions or when you’re not investing in the ideal market.

The best BTR markets are ones that are popular among new residents searching for a place to live. If you own or invest in a property that has low vacancies, it’s easier to maintain a consistent cash flow. When the property is in a hot market, it will steadily appreciate while you hold on to it.

Before you invest in build-to-rent properties, you should know more about the top markets that will help you benefit from cash flow and appreciation. Here is an in-depth look at five markets to consider.

National Data for Comparison

1. Lehigh Acres, Florida

Lehigh Acres is a premier market in Florida that’s known for its picturesque lakes and sprawling golf courses. It also has proximity to numerous sandy beaches along the Gulf of Mexico. 

The median price for single-family homes in Lehigh Acres is $369,000, which is well below the national average of nearly $437,000. Over the past five years, home values have increased by more than 106%, which is well above the national average. These numbers indicate that property investments in this area should pay off quickly. 

There are currently more than 4,000 homes for sale in Lehigh Acres. Since properties continue to appreciate in value, this location is a great spot for making BTR investments. Keep in mind that the unemployment rate in this area is just 3.1%. When you want to build residential real estate in Lehigh Acres, the average price per square foot is around $214 as of April 2023, which is just below the national average. 

2. Huntsville, Alabama

Huntsville is a large city in the Appalachian area of northern Alabama. Its population is currently just under 221,000, which makes it the most populous city in the state. Over the past five years, the population has grown by around 6.25%, which is substantially larger growth in comparison to national population growth rates. 

The increase in people choosing to move to Huntsville is driven by affordable home prices and a strong economy. Companies like Target, Boeing, and Northrop Grumman call the city home, which keeps unemployment rates low and makes the city more appealing to young professionals searching for a job and a place to settle down. As of May 2023, the unemployment rate in Huntsville is 1.6%, which is tied for the lowest rate in the country. 

When looking specifically at housing, the median home price is right around $420,000, which is slightly below the national average. Over the past five years, home values have risen by nearly 42%. Keep in mind that the national average is just 31%.

The median listing price per square foot is $171, which means that building a home in this city shouldn’t be too expensive. There are around 1,200 homes for sale in the area. The inventory buyers have access to is at its lowest in more than a year, which is part of the reason why home values have been increasing. 

3. San Antonio, Texas

San Antonio is a highly popular city that’s home to the University of Texas at San Antonio and many exciting attractions that residents and tourists alike love to visit. The popularity of San Antonio is relatively recent, which is why property investors are able to make high returns when it comes to appreciation. 

The city has a population of right around 1.48 million. Over the past five years, population growth has been 5.64%, which far exceeds the national population growth of 2.36%. When you’re investing in BTR properties, choosing a location with high population growth is highly recommended. 

The median listing price for a single-family home in San Antonio is around $315,000, which is much more affordable than the home values found in most other big cities. Despite this affordability, homes were priced at an average of $225,000 in July 2018, which means that prices have increased by 40% over the past five years. This is another number that’s better than the national rate. 

There are currently around 10,000 homes on the market in San Antonio, which is the lowest inventory has been since February 2022. As for the unemployment rate, as of May 2023, it’s just 3.8%. There are numerous companies with headquarters in San Antonio, including AT&T, Rackspace Technology, and USAA.

 If you want to build a home in San Antonio, the cost of doing so is around $177 per square foot as of April 2023, which isn’t that expensive in comparison to other cities across the U.S. 

4. Rockport, Indiana

Rockport is a quaint city that’s home to just under 2,000 people. Despite the small size, Rockport is a great destination for investors because of its affordable home values and proximity to larger cities like Evansville and Louisville. Many people who work in Evansville are choosing to live in smaller cities like Rockport. 

In April 2023, the price of a home in Rockport was around $319,000, which makes for a 167% increase in comparison to the median home values in April 2018. Home values are still well below national rates, which shows that there’s room to grow. 

There‘s just over 30 homes on sale at the moment. As long as supply continues to outstrip demand, home values should increase at a steady rate. You can build a home in Rockport for just $83 per square foot as of April 2023, which makes it easy to build properties and rent them out for a high return. 

The unemployment rate for this area is around 2.6%, which means that people who come to Rockport are generally able to find jobs and will want to search for homes or apartments to rent. 

5. Columbia, South Carolina

As the capital city of South Carolina, Columbia has long been a favorite among real estate investors. The people who live there have easy access to exciting destinations like the Columbia Museum of Art and the Riverbanks Zoo & Garden. This place is also home to the University of South Carolina, which is one reason why this is a good place to invest. 

Columbia has a population of right around 138,000. Since 2018, the city’s population has grown by 2.07%, which is similar to the U.S. average. Even though Columbia is considered to be a large city, homes in the area cost a median of $265,000 and have a median price per square foot of around $145, which shows that you can build real estate at a relatively affordable cost. 

When looking specifically at rent, the average price for a one-bedroom apartment or home was just under $850 in July 2021. Two years later, the average rent is $1,132, which indicates that investors who own rental properties are building high cash flows on the properties they invest in. 

Home values have appreciated by around 70% over the past five years. One reason why home values have increased recently is because inventory has dropped off considerably. In December 2022, there were more than 5,800 homes on the market. Between 2018 and the end of 2022, inventory had never dipped below 5,500 homes in a single month. As of April 2023, there are only 1,954 homes on the market, which gives investors a unique opportunity to help meet demand with a BTR approach. 

The unemployment rate in Columbia was 2.50% as of May 2023. It’s often well below the national average. Companies like Amazon, Walmart, and Blue Cross Blue Shield have headquarters in this city, which is a major reason why the unemployment rate is so low and home values continue to rise. More job opportunities mean more demand for housing.

Conclusion

BTR is a great investment option in 2023. You can use it to maximize cash flow, appreciation, and equity, especially in these five markets. Adding the right investments to your portfolio can set you up perfectly for long-term success. 

Make better use of the BTR strategy with appealing financing options that allow you to put less money down compared to traditional loans that stretch your capital further and create a higher ROI. Investing in the right BTR market will give you the opportunity to BRRRR new construction within just a few years of property ownership and ultimately scale quicker and achieve the infinite returns we are all chasing in real estate investing.

This article is presented by Rent To Retirement

Rent To Retirement is the Nation’s leading Turnkey Investment Company offering passive income rental properties in the best markets throughout the US to maximize Cash Flow & Appreciation! Rent To Retirement is your partner in achieving financial independence & early retirement through real estate investing. Invest in the best markets today with a comprehensive team that handles everything for you!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

For one woman entrepreneur, youth has its advantages. Caroline Danehy, cofounder and chief brand officer of Fair Harbor Clothing, and her brother started the company in 2014 when she was in high school. She had passion, youthful exuberance, agility, curiosity, grit, a willingness to be coached, and an attitude to do whatever it takes.

Fair Harbor has gone from selling board shorts made from recycled plastic bottles from the family garage to becoming a sustainable lifestyle brand in less than a decade. Flagship stores have opened in Soho and Palm Beach Gardens. The brand is sold in Nordstrom, Saks 5th Avenue, specialty stores, and online through its site and other sites.

Passion For Sustainability Becomes A Lifestyle Brand

Danehy spent summers fishing, swimming, and surfing in Fair Harbor with her family. Fair Harbor is a small summer community on Fire Island, off the southern coast of Long Island, New York.

“It’s a magical place with no cars and a simple, minimalist living,” Danehy said. The life there inspired the siblings to form a company that transforms harmful plastic waste into comfortable beachwear.

“We started to notice more and more plastic waste washed up onto the shores,” sighed Danehy. She became interested in sustainability, insisting that her family turn off lights, bring reusable bags to the grocery store before it was mandated, and organize park cleanups.

At the same time, Danehy developed a strong love for fashion. She wrote a fashion blog from middle through high school, “Cakes, Cookies, and Cardigans,” which focused on consignment and vintage shopping. It was a way for her to make old fashion new again by repurposing clothing.

In 2014, Danehy’s older brother, Jake, a junior in college and a geology major, was learning about plastic waste and its impact on the environment, particularly oceans. Danehy was a senior in high school. He told his sister, “We should start something that matters.”

They began conceptualizing the mitigation of single-use plastics by creating awesome products people love wearing. The first product was a pair of board shorts made from post-consumer plastic bottles turned into polyester. These shorts are worn in a wide range of activities, such as surfing, bodysurfing, diving, swimming, and sailing.

They entered a Shark Tank-like pitch competition—TIA Entrepreneur Showcase—at Colgate University, where Jake was a student. Judges included Jessica Alba, MC Hammer, Neil Blumenthal, and Jennifer Hyman. They were awarded $20,000 plus mentorship.

The siblings traveled up and down the East Coast doing trunk shows and fulfilling orders from their parent’s garage.

Selling at trunk shows gave the brother-sister team clear insight into customers’ values and how to position the brand. They were scrappy, determined to succeed, and able to figure things out. Still, naysayers said they were too young to start a business and needed more experience. Boy, did the siblings prove them wrong!

Since then, Fair Harbor moved from selling at trunk shows to e-commerce on their site and others, wholesale (including Nordstrom and Saks 5th Avenue), and opening two retail stores. “We’ve revolutionized the [board shorts] category by replacing mesh lining with our ultra soft breeze knit liner [that is chafless],” stated Danehy.

They expanded from board shorts to other men’s beachwear and have a line of women’s and kids’ wear. Fair Harbor has recycled over 30 million plastic bottles by turning them into our apparel. “We closed our first institutional round of funding,” said Danehy. The dollar amount was not disclosed.

The Benefits Of Mentors And Advisors

Early-stage founders—especially inexperienced ones—can save time, money, and aggravation by finding mentors and advisors with knowledge, expertise, and connections. Based on their experience, mentors provide guidance and advice that help entrepreneurs avoid mistakes and shorten the time to success.

As young entrepreneurs, the brother-sister cofounders knew they had much to learn. “My dad always taught us to surround ourselves with people who have more experience and know more than we do,” said Danehy.

They took advantage of the mentorship provided through the TIA competition. Since then, Danehy has learned to look for people she has a natural connection with from various industries and who have complementary skills to hers. She meets them everywhere, including industry events.

To Avoid Burnout, Schedule Downtime

“What Jake and I lack in experience, we make up for in grit, determination, flexibility, and staying agile,” said Danehy. “But I couldn’t imagine a better time to start a business than my late teens and Jake’s early 20s when you have a fresh perspective and an incredible focus to ensure it works.”

Still, as a young founder, Danehy finds it challenging to maintain a work-life balance. She puts her entire being into Fair Harbor. Over the past nine years, she has worked hard, kept her head down, pushed forward, staying very focused on product, customer, and brand.

Over time, Danehy realized that having a perfect work-life balance isn’t the goal. It’s anxiety provoking. If you concentrate on what you don’t have, you will never, ever have enough, so she is grateful for the moments of calm she does have.

Whether it’s cooking on Tuesday nights with her boyfriend, going vintage shopping on the weekend, spending time with her family, or meditating, she needs outlets to take a breath. “I need to put it in my calendar; otherwise, life gets away from me,” said Danehy.

What fuels your entrepreneurial passion?

This article is presented by GSP REI. Read our editorial guidelines for more information.

Large investors expanding their affordable housing portfolios has recently become a notable trend in the real estate market. Nuveen, the investment management division of the Teachers Insurance and Annuity Association of America (TIAA), made headlines with its acquisition of a substantial 12,000-unit affordable housing portfolio, predominantly located in the mid-Atlantic region, with a significant concentration in New York City. 

Nuveen, which manages $1.1 trillion in assets, is now managing a $6.4 billion portfolio of affordable housing. Prior to this deal, Goldman Sachs, alongside the Michaels Organization and the Community Development Trust, purchased $1.2 billion worth of affordable housing across the United States earlier this year. These investments reflect a growing trend among large investors who recognize the advantages of affordable housing investment. 

In this article, we delve into the top four reasons driving this expansion and explain why smaller investors should consider participating in this resilient market. We’ll also talk about how you can start investing in affordable housing to make a significant profit while making a real difference in communities.

1. Increasing Nationwide Demand

Supply and demand are a crucial factor in successful real estate investing. Whether you are fixing and flipping houses, wholesaling, or building a rental portfolio, making a profit will be challenging if there isn’t demand for your product. If there is demand, your vacancy rate will stay low, and your rents will remain strong and consistently increase. 

Demand for affordable housing in the United States has reached critical levels and is continuing to rise. The National Low Income Housing Coalition estimates that the nation faces a shortage of 7.3 million rental homes that are both affordable and available to extremely low-income renters. This scarcity means that for every 100 households in this income bracket, there are only 33 affordable rental homes. 

Such shortages persist across all states and major metropolitan areas. But it’s not just extremely low-income renters who need affordable housing. To put things into perspective, Nuveen’s research reveals that nearly half of all U.S. renters are considered rent-burdened, allocating more than 30% of their income toward rent payments. Even more concerning is the fact that one in four of these rent-burdened individuals are severely rent-burdened, spending over 50% of their income on rent.

Despite ongoing efforts at the local, state, and federal levels, the need for affordable housing continues to intensify nationwide. This mounting demand creates an attractive investment opportunity for those looking to enter the affordable housing market. 

2. Favorable Yield Stability Throughout the Entire Economic Cycle—Including Recession

Large investors are drawn to affordable housing not only due to its social impact but also because it offers favorable yield stability, even in challenging economic climates—including recession. 

Nuveen’s research showcases the affordable housing sector’s resilience, illustrating that affordable housing investments, compared to traditional real estate sectors, including market-rate apartments, industrial, office, and retail, have generally delivered higher yields throughout the last 20 years. This long-term track record indicates that affordable housing investments can provide investors with attractive returns and stability throughout an entire economic cycle, even during downturns.

According to Nuveen’s report, an additional favorable aspect of affordable housing is its tendency to avoid downward rent adjustments during a recession, unlike market-rate apartments. This characteristic highlights the durability of cash flow in this sector compared to other forms of housing. 

Simultaneously, the scarcity of affordable housing options and the overwhelming demand for them contribute to the sector’s robust performance. Nuveen notes that properties designated for lower-income renters exhibit higher occupancy rates and experience less volatility compared to traditional apartments. This phenomenon can be attributed to the persistent undersupply of affordable housing relative to the substantial demand, creating a stable, consistent pool of potential tenants for these properties. 

By diversifying their portfolios with affordable housing assets, investors can potentially mitigate risk while generating consistent income streams.

3. Backed by Government Subsidies 

One of the significant advantages of investing in affordable housing that is attracting institutional investors is the access to government subsidies, such as Section 8 vouchers. These subsidies provide property owners with stable, predictable rent collections since the government makes direct payments to owners on behalf of eligible tenants. Consequently, affordable housing investments benefit from reduced risk and enhanced cash flow reliability. 

The availability of government support adds a layer of security that makes affordable housing investments even more attractive to investors. My personal experience with single-family affordable housing investments has been that Section 8 voucher rent tends to trend above market-rate rents. 

4. Alignment With Public and Private Social Impact Investing Goals

It is crucial to emphasize that the expansion of affordable housing portfolios aligns with paramount societal and policy objectives. Governments at all levels—local, state, and federal—have acknowledged the pressing need to tackle the affordable housing crisis and implemented initiatives to incentivize investments in this sector. 

This does not mean all the red tape has been lifted when it comes to developing affordable housing or accepting Section 8 voucher tenants. Affordable housing investors will have to overcome challenges, including public and private resistance. By engaging in this market, investors not only have the potential for financial gains, including reliable, stable income, appreciation, and tax advantages but also play a pivotal role in addressing the vital housing needs of communities.

Institutional investors have been expanding their affordable housing portfolios to make a social impact investment that generates economic returns but also drives positive change and improves the well-being of individuals and families in need.

Why Smaller Investors Should Invest in Affordable Housing 

Institutional investors expanding their affordable housing portfolios is a testament to the opportunities present in the sector. The combination of intensifying nationwide demand, favorable yield stability, and government subsidies certainly creates a compelling investment proposition. 

However, it’s not just institutional investors who can benefit from affordable housing investments. Smaller investors should take note and consider following suit for several reasons, but they should also fully understand the risk that comes along with affordable housing investments and the factors that are crucial to success in the sector. 

As with any investment, with great reward comes great risk. Luckily, however, the risk can be mitigated. 

First, demand for affordable housing extends far beyond what major institutional investors are capable of filling. The shortage of affordable rentals and homes affects communities all over the country, of all sizes, from urban cities to suburban and rural areas. Both multifamily and single-family rentals and homes are desperately needed. 

Second, the potential for attractive yields and stability applies to investors of all sizes. Nuveen’s research highlights the consistent outperformance of affordable housing investments compared to other asset classes. 

Smaller investors can diversify their portfolios and access these benefits by actively engaging in direct investments or passively investing in private real estate investment funds that focus on affordable housing. This allows them to tap into the sector’s potential while leveraging the expertise and resources of established market players.

Third, government support and subsidies are not exclusively available to institutional investors. Smaller investors can also benefit from programs such as Section 8 vouchers and other local and state initiatives aimed at increasing the availability of affordable housing. As discussed, these mechanisms provide stability, reduce risk, and ensure reliable rental income, making affordable housing investments an appealing option for investors of varying scales.

Moreover, the current political landscape and public sentiment favor affordable housing initiatives from everyone, from institutions to private investors and nonprofits. Governments at all levels are actively seeking public-private partnerships to address the affordable housing crisis. By participating in this market, smaller investors can align themselves with government priorities, potentially accessing additional incentives, grants, and deal flow.

An Action Plan

It’s important for smaller investors to conduct thorough due diligence and seek guidance from experienced investors when venturing into the affordable housing market. Understanding local market dynamics, evaluating potential investment opportunities, and complying with regulations are crucial steps to success. Collaborating with experienced investors, contractors, property managers, and housing organizations can provide valuable insights and mitigate risks associated with entering the affordable housing market. 

One great thing about investing in affordable housing is there is a low financial barrier to entry—you don’t need a ton of capital to start investing in affordable housing. 

However, on the flip side, there is a very high barrier to success when investing in affordable housing. Many times, these homes need to be fully redeveloped or heavily renovated. You will also need to know how to underwrite the renovation cost properly and manage the construction budget, time frame, and quality to ensure you stay in line with your projections and time frame and mitigate the future risk created from shoddy renovations. 

It is also crucial you perform strict tenant screening practices. It is a major misconception that all Section 8 tenants will trash your property. This is certainly not the case, and strict tenant screening can certainly help lower the chances of this happening. 

Another crucial aspect of affordable housing investment success is aggressive, professional property management. Whether you handle the property management yourself or work with a third party, they need to be proactive and handle everything professionally. I can expand on best practices in the construction and property management of affordable housing in another article.    

The expansion of affordable housing portfolios by large investors signals the immense potential of this market. The combination of intensifying demand, favorable recession-resilient yields, and government support makes affordable housing investments an appealing option for both large and smaller investors alike. By capitalizing on this trend, smaller investors can profit with a purpose by making a positive contribution to addressing the housing crisis while generating favorable financial returns. With the right research, partnerships, management practices, and support, smaller investors can navigate this market and unlock the opportunities that affordable housing investments present.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.