Are Build-to-Rent Deals Getting Better Or Worse? (2022)

build-to-rent market research market updates new build new construction real estate market Jan 01, 2022

We've talked about rising rents, changes in cap rates, and availability of land. So are build-to-rent deals becoming more or less common? Are the terms and proformas getting more appealing? Should you lean toward waiting a year or two, or is now the time to invest?

What do you think? And this is off the cuff...

Are build-to-rent deals going to get better?

At the beginning of the show, we kind of humored the question, "a good deal is a 5% cap rate here and a 4% cap rate there...

Are deals gonna get better anytime soon?

Chase Leavitt: I don't think so. I think the cap rates are going to continue to get compressed and go down. I think rents will continue to climb. But as far as what you have to pay to get in the purchase price that's going to go up as well.

Sherida Zenger: I agree. I think if you get in now, you're going to just be banking on rents increasing that are going to help provide more cash flow. I think that they're coming down, like, Yeah, I think cap rates are coming down.

Steve Olson: I agree with the two of you. The linchpin is the renter, and what they can afford. If things begin to happen in the economy where jobs soften, wages stagnate, because they've actually been going up for the first time in a long time. Right, that then the economy is awash in the stimulus.

Seems like every week, the government is talking about a new trillion-dollar bill that they need to pass of some kind. So if you compare a low unemployment rate, you know where we are right now in Utah is one of the lowest in the country, I think, is two something percent.

The last I checked, the highest unemployment rate was Los Angeles County, it's like seven-ish percent. There are a few small areas that are higher. But markets with low unemployment rates are probably going to pull jobs, raise rents. And that's what I'm watching it because it all depends on this is the last episode we talked about, what's the gross income.

If that doesn't continue, to be healthy, then you could probably see a situation where things back off a little because of those rents and the salaries that people are getting, they've been absorbing these crazy building costs and land costs increases. They continue to do it as soon as the as long as the renter is strong.

Sherida Zenger: And again, I think that goes back to knowing what product you are buying. You don't want to buy an A-class product if you're worried about some of these things. Maybe you want to stay in a B or C range. They are more affordable.

Steve Olson: I talked to a guy last week that said B and C weathers recessions better. Right now, it's easy to want to do a pool like the Ritz Carlton and build a beautiful A-class community. But that's coming from a place that hasn't seen a downturn...

Watch the rest of the episode here: 

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