Why builders/borrowers should consider new rental construction starts

Homeowner trends from 2002 to 2018 show that fewer people overall own their own homes. Demographically, people are moving from rural areas to urban areas where homeownership levels are generally higher. Also, homeownership among the white population is about 70 percent versus 50 percent for blacks and Hispanics. Homeownership is also lower among people under 35 than for older people. In fact, the stats show that the older a person is, the more likely they are to own their home.

In 2004, 82 percent of people between 55 and 64 owned their homes, but that level had dropped to 75 percent in 2018. Seventy-seven percent of people 45 to 54 owned their own homes in 2004 versus 70 percent in 2018. Among 35 to 44-year-olds, homeownership dropped from 69 percent in 2004 to 60 percent in 2018. For Americans 35 and under, homeownership peaked at 43 percent in 2004 and had fallen to 36 percent by 2018. These stats may be alarming, but it indicates a growing market for rental properties.

 Builders Should Look to New Construction on Rentals

Single-family rental properties have been the norm in metro areas all across the U.S. But that could be changing as cities and states all across the country are doing away with zoning ordinances that favor single-family only residential areas. That could mean there is about to be a shift to multifamily rental properties from New York to California. If that is the case, then I’d expect a run on commercial financing for these property construction projects.

Millennials have been putting off big decisions in their lives for later than previous ages. That means they tend to rent instead of buying well into their 30s and 40s, which is why we have such a low degree of homeownership. It also means they are a key market for multifamily housing. Builders who want to compete in the urban markets would do well to look toward multifamily.

Single-Family Rentals Aren’t Going Anywhere

While there will likely be a surge in multifamily rental property construction and financing beginning within the next two to five years, single-family rental properties won’t disappear. That’s because institutional investors have been on a buying spree. They’re buying up starter homes and renting them out to young families. As long as there is a rental market for single-family residential units, you can bet institutional investors will hold onto those properties. They won’t sell until the market shifts to accommodate more buyers.

What this means for builders and borrowers is that single-family construction likely won’t be going away just because multifamily picks up. In fact, you might find a lucrative market to build and sell single-family rentals to institutional investors.

 What Kind of Financing Is Available For Rental Construction Projects?

Builders looking to get into single-family or multifamily new construction projects will have to figure out the financing on those projects early in the planning phase. Will you seek traditional bank financing or look for alternative funding channels? Don’t forget there is a new class of private investor with cash in the pocket ready to help you finance your projects. Real estate crowdfunding platforms allow private accredited investors to finance new real estate projects, whether they be single-family or multifamily.

To get access to this investor money, you simply create an account at Sharestates and present your project for review. Using a 34-point underwriting process, your project will be vetted to see if it meets the expectations of our investors. If it does, you can have your new rental construction project funded from more than one funding source. The process is faster than going the traditional money route.