Slim profit margins on new builds have developers adopting a new strategy
Homebuilders are stepping up to the plate and becoming landlords in the latest growing housing industry trend.
Nearly a decade ago, there was a foreclosure crisis. Realtors were buying old houses and flipping them. Now, the strategy is to buy new and rent out.
This trend allows investors to buy newly built homes and continuously rent them out instead of selling again. This transformed the typical single-family rental into an ever-growing, large-scale class. Homebuilders are now catching onto the trend and building homes for rent, rather than building to sell. The cost of labor on top of the cost of land, materials and other things, make it hard to profit off the sale of a new build.
So, they turn to renting. Developers are now building entire communities of detached, single-family homes specifically built to rent.
Toll Brothers, a luxury homebuilder, recently announced its commitment to invest $60 million in a $400 million venture that will build homes specifically for rent in seven major U.S. cities.
Lennar, the nation’s largest homebuilder by revenue, experimented with a build-to-rent community in Sparks, Nevada, and announced in July its plans to move further into the space.
Clayton Homes, the 15th largest site-builder and home manufacturer, also recently revealed its build-for-rent home communities, to be built within its market.
These homebuilders are targeting younger families who seek the more flexible method of renting homes rather than purchasing.
In January, Professional Builder Magazine said that it’s a trend, projected to continue as consumers struggle with higher interest rates, higher home prices, and a limited supply of homes for sale. Or, simply prefer to rent.