October 24th, 2017. Luke Egan
Is Build-to-Rent a Future Money Maker?
For decades, buy-to-let was a common option for developers, however new regulations have taken the shine off this money-making scheme slightly. Instead build-to-rent, also known as the private rented sector (PRS), is growing in popularity.
What is Build-to-Rent?
In short, these are purpose built rental homes. They usually benefit from longer tenancies than standard properties (three years or more) and have been designed with added bonuses such as communal areas and services like an onsite laundrette or maintenance person. Plus, the cost of utilities is factored into monthly rent payments.
Furthermore, whereas buy-to-lets can be anywhere, build-to-rents tend to be in purpose-made blocks near city centre locations or on a public transport route. This means neighbours will be likeminded tenants who will more than likely be young working professionals or students looking for an easy commute and nearby amenities.
Tackling the Housing Shortage and Making Money
According to PwC, it’s estimated that 60% of Londoners will be living in rented accommodation by 2025. It’s no secret that the UK is suffering from a housing shortage and has been for some time, therefore it’ll come as no surprise that the government is keen on build-to-rent projects.
Building a house to rent out is a win-win situation: it’s a long-term investment for the developer who will have a portfolio of properties found in close proximity to one another, and provides the rental market with much needed accommodation.
It is also a highly-desirable opportunity for lenders. To date, build-to-rent has mostly been made possible through forms of collective investment, however the attraction of higher than average rental income and the steady increase in property value means new purchase options could soon be available.
So, in answer to the title of this piece – yes, build-to-rent will most likely be a future money maker.
According to the British Property Federation, there are now more than 83,000 build-to-let units completed or planned, and this market is only set to get bigger. Research from Knight Frank has revealed investors intend on spending £50billion on this by 2020.
A huge benefit of this scheme is that it’ll provide a regular income and return on investment, something that flipping property will not do.
However, these large-scale developments will require substantial funding upfront in order to get the development built and habitable. You will be unable to sell off units along the way in order to complete the ongoing build.
Not to worry though, that’s where working with an experienced commercial finance broker like us comes into play.
From Apartments to Build-to-Rent Mega Mansions
Although the vast majority of the properties built in this manner are apartments, the UK’s first build-to-rent mansion hit the news this week. The 4,643 sq. ft. five-bedroom property near Regents Park in London offers the utmost luxury. An embassy until three years ago, it would be worth £16.5million if sold, but is being marketed as £10,000 a month to rent.
Becky Fatemi, Managing Director of its letting agent, Rokstone, said:
“The strategy and timing of 50 Cumberland Terrace is extremely adroit and reflects the dramatic transformation of London’s ultra-prime residential market,”
“Stamp Duty has made real estate investment in London for wealthy families a long-term 10-15-year opportunity, with affluent people looking for short-term housing solutions of less than three years choosing to rent rather than buy.”
Are You Considering a New Purchase?
Whether you’re looking to build a large development from the ground-up or simply want to refurbish a current investment, we can find you the finance you need. Discover our development finance services today.
Article By Luke Egan
October 24th, 2017
Luke heads up our specialist property finance team where his focus is to drive our transactions valued between £100k and £5m.
Luke and his team manage enquiries from initial enquiry through to redemption. Luke also sits on the internal credit committee with Ben and Tom.
Luke joined Pure back in 2014 following a successful role in the Barclays property finance team that lasted over 8 years.See more articles by Luke