Focus on long term profits: why BTR is a smarter investment choice

Focusing on long-term profits, POD Management reflects on why Build to Rent is a smarter and attractive investment choice.

Simon Smith of POD Management reflects on the success and future of the Build to Rent sector | BTR News
Simon Smith of POD Management reflects on the success and future of the Build to Rent sector.

Navigating the volatile nature of the property market has often kept investors on their toes as they readily look out for the next big opportunity. With the supply of new housing still underperforming the UK government’s 300,000 unit per year target, development prices continue to rise, presenting Build to Rent developments as an attractive investment opportunity looking forward. These purpose-built projects involve the construction and professional management of properties designed specifically for the rental market, but what has propelled them into the limelight in recent years? Well, considering today’s housing climate, renting is becoming many people’s first choice pathway onto the property ladder.

With more than £75bn expected to be invested across the sector of the property industry by 2025, the growth of Build to Rent shows no sign of slowing down. In support of this, Simon Smith, Leasing Manager at POD Management, has shared his insight into the driving forces behind this rapid growth of Build to Rent developments, and why it continues to look a smart investment choice in the years to come.

By Simon Smith, Leasing Manager, POD Management

Why is Build to Rent thriving?

The demand for rental opportunities has predominantly been driven by the restricted supply of purchasable properties within the UK. Through this gap in the market, Build to Rent developments have emerged to offer prospective tenants a high-quality alternative to home ownership. With rising mortgage prices continuing to restrict home buying, this reality has left renting as one of the few viable solutions for many eager residents.

Also, the private rented sector (PRS) is experiencing one its largest shakeups within recent memory. There are fewer landlords due to a combination of tax cuts, energy efficiency requirement changes, and the long-awaited Renters Reform Bill. Build to Rent developments have not only weathered this storm but have been presented with a significant opportunity to thrive because of it.

A limited pool of more expensive rental options originating from these financial pressures will not sit well with potential tenants. Instead, the idea of expertly managed homes kitted out with attractive amenities by professional landlords will prove to be the more attractive offer. In fact, Build to Rent developments already offer many of the items expected to be introduced within the Rental Bill, with flexible tenancies, allowances for pets and décor changes, and greater tenancy security amongst the most prominent.

Additionally, the rental market has experienced a gradual shift in lifestyle preferences driven by a greater demand for communal facilities and experiences. Build to Rent developments specifically cater to this by providing a range of amenities to renters, including on-site gyms, co-working spaces and communal areas. Through this sense of community and belonging, Build to Rent inspires greater tenant retention and a steady flow of stable income in the long run.

How does Build to Rent promise long-term profits?

Where traditional property investments within the PRS are prone to fluctuating market conditions and empty apartments which impact a landlord’s income streams, Build to Rent offers a steady and reliable inflow over a far longer period. After all, these properties are tailor-made to fulfil all the needs and preferences of renters, encouraging them to commit to a long-term stay.

Whilst rental income does act as the primary contributor to stable profitability in the long run, it isn’t the only one. With an investment of this scale, there is also the potential for both asset and capital appreciation, with the extend of this depending on the location of the development, as well as additional factors including urban growth, future changes in the UK housing market, surrounding infrastructure development and more. Should you ever decide to sell your investment, for whatever reason, the long-term potential of Build to Rent is boosted even further.

Also, where Build to Rent developments comprise of multiple units within a single development – with the average of those under planning as of Q4 2022 being 279 units per development – there is also the potential for economies of scale throughout the building and management phases of Build to Rent properties. Should this be the case, developers can spread the costs of construction, operation, maintenance, and more over a larger number of units, reducing the average cost per unit and boosting profit margins before tenants even move in.

How can a property management company streamline and oversee the process?

Whilst many landlords would prefer to manage their properties alone, because of the sheer scale of Build to Rent developments, this unfortunately isn’t a feasible option. Especially if the landlord or property owner is located outside of the development area, dealing directly with tenant enquiries, maintenance issues, and property upkeep over such a vast number of units will take control of their livelihoods.

It’s for this reason that Build to Rent landlords tend to employ the assistance of third party operators, such as a professional property management firm. They can manage these developments much more economically. This includes acting as the point of contact for tenants, ensuring the timely collection of rent, assuring maintenance issues are resolved without delay, and delivering a hassle-free rental experience for tenants.

Considering the increased legislation surrounding issues such as building and fire safety, the skills needed to oversee the running of these developments is often best provided by specialists. This top-end service incentivises greater tenancy retention amongst inhabitants, keeping lost income to a minimum whilst protecting the long-term value of the property itself.

As we continue to navigate this strained and restricted property market, Build to Rent developments are becoming a popular solution amongst property buyers. They offer landlords long-term financial security, with the day-to-day oversight streamlined by the assistance of a qualified and experienced group of property managers. As we continue through 2023, this corner of the industry will only continue to thrive!