Thursday, June 18, 2020

Modular is the Answer for “Build to Rent” Investors

Looking at what is being built as affordable housing in cities today finds mostly multistory buildings with apartments or condominiums all looking alike. Same old box stacked upon same old boxes built mostly using Federal, state or local subsidies in order to keep the rents or even ownership costs somewhat affordable.

They can be built as site built, panelized or modular with modular rapidly becoming the ‘go to’ construction method. Many new modular factories are popping up West of the Mississippi to feed the need for huge affordable housing projects from Denver to the West Coast.

But there is another affordable market that is gaining ground rapidly. The “Build to Rent” single family affordable home. These can be found in scattered lots, as infill in housing developments and in entire communities of rental homes.

There is a tremendous market for singles, couples, families and seniors looking to rent rather than buy. These rentals are priced at the affordable housing rate or even slightly higher for their area and appeal to renters looking for more than a box stacked five stories high.

The “Build to Rent” investor will find a huge market for single family housing as many people, especially after COVID-19, can’t afford to buy any houses listed in their area.

Here are some things an investor and/or developer needs to consider before jumping into this market.

One of the immediate benefits is “Implied Equity”. Financing for homes you immediately plan to rent, those rent payments will go directly toward paying down your mortgage. Often this may give you better rates from lenders.

Next you need to secure a continuous supply of both land and homes. If you have developed land before, you already know the requirements and costs associated with that part. However, finding a steady source of labor and contractors to build your rentals is another story.

The absolute best option when building “Build to Rent” properties is securing a couple of modular factories already building single family homes. These homes must be built to IRC standards which allows them to be used as infill homes and you won’t be saddled with simply building a manufactured home type community.

You can buy homes from a modular factory who is supplying other builders or you can look to purchase a modular factory, ensuring a continuous supply of homes. You can subcontract the set and finish of the rental homes to others or you could purchase or build your own factory which would allow you to be vertically integrated with your own set and finish crews in house.

In the past it was thought that people would rather buy a home than rent one but today that idea has changed with many renters wanting to move into a newer home. This attracts premium prices for the developer/investor. 

If someone can afford a premium rent, why would they want to live in a 50 year old house that probably has poorly insulated walls, single pane windows, 50 year old plumbing and 100 amp service?

Renters moving into new “Built to Rent” homes will have fewer maintenance calls to management which means less costs to the investor.

With land at a premium on the West Coast, most investors will probably look at the East Coast for their projects. East Coast modular factories have been building single family homes from day one and have it down to a science. Set crews and finish crews are more readily available.

With Amazon’s new headquarters coming to the DC area, Google buying up land in Northern Virginia and the need for massive amounts of single family rentals in the DC to Baltimore to Philly markets, look for a real boom in “Build to Rent” developers/investors to begin their search for modular home factories to buy from or possibly purchase to secure a steady supply of rental homes.

Gary Fleisher is a housing veteran, editor/writer of the ModcoachNews blog and Modular Construction Industry Observer and Information Gatherer


  1. Agreed. Exactly what Key Structures is doing in Colorado:

  2. It's been done numerous times right here in PA; with several operations much more sophisticated in their funding, financing and in their site development-wise..than others. Again, it's typically a "he who has the gold, makes the rules" not visa versa!