The build to rent (BTR) market in the UK is rapidly expanding, with increasing numbers of institutional investors investing in the sector. The BTR market provides a unique opportunity for institutional investors seeking to capitalize on the growing demand for a volume of high-quality rental properties in the UK and the associated, stable income that brings. In this post, we will explore the benefits of investing in the BTR market and outline how returns are optimised.
Benefits of Investing in the BTR Market
- Long-term, stable income streams
The BTR market offers long-term, stable income streams for investors. This is because tenants typically sign longer-term leases of two to three years, providing investors with a reliable and predictable cash flow. Additionally, the high demand for rental properties in the UK means that the rental income from BTR properties is likely to remain stable over the long term. New units and buildings can be let up in relatively little time given the huge demand.
- Scalability
The BTR market is highly scalable, meaning that investors can rapidly grow their portfolios to meet the increasing demand for high-quality rental properties. As the UK population continues to grow, the demand for rental properties is only going to increase, providing a significant growth opportunity for institutional investors. Less than 2% of the UK’s current Private Rented Sector (PRS) stock is purpose built BTR, but when compared to other countries like the US and Europe, this should be closer to 30%.
- Professional management
Unlike traditional buy-to-let investments, BTR properties are managed by professional property management companies. This means that investors can benefit from the expertise of experienced property managers, who are responsible for maintaining the properties, finding tenants, and collecting rent. This reduces the burden on investors, allowing them to focus on other areas of their portfolio. Efficiencies can be delivered in managing properties at scale and from the use of smart and remote technology.
- Diversification
Investing in the BTR market provides institutional investors with diversification benefits. BTR properties are typically located in different areas of the UK, reducing exposure to any one specific geographic location. Additionally, the rental income from BTR properties is not highly correlated to other asset classes, such as equities or bonds, providing a hedge against market volatility. Importantly, as BTR apartments are subject to market rental inflation the income does tend to be a good hedge for inflation.
Optimising Returns
- Focus on high-quality, well located properties
Investing in well located BTR properties is essential for maximizing returns. This means investing in properties with good transport links, local amenities with proximity to major urban and employment hubs where demand is evident. Good properties are more likely to attract good tenants, who are willing to pay a premium for the rental experience.
- Partner with experienced property management companies
Partnering with experienced property management companies is essential for successful BTR investments. Look for companies with a proven track record of managing BTR properties, and who have a deep understanding of the local rental market. Good property managers will help to ensure that your properties are well-maintained, that they are rented to high-quality tenants, voids are quickly replaced by establishing waiting lists, and that you receive a reliable income stream.
- Stay up-to-date with market trends
Staying up-to-date with market trends is essential for successful BTR investments. Keep a close eye on rental market trends, including supply and demand, rental prices, tenant preferences and technology which constantly changes and evolves. This will help make informed investment decisions, and to stay ahead of the competition.
Conclusion
Investing in the BTR market is a highly sought after investment class. Good sites with the ability to deliver the rental class in scale via existing planning permissions is crucial to delivering value. This asset class is highly sought after by global capital allocators and investment firms seeking access to long-term, stable income streams, scalability, professional management, and diversification. By focusing on well location properties, partnering with experienced property management companies, and staying up-to-date with market trends, investors can maximize their returns and capitalize on the growing demand for Build to Rent investment in the UK
