Understanding Build-to-Rent - Is It the Right Investment for You?
The developer retains ownership of the apartments and rents them out for extended periods. The buildings are designed with amenities that enhance the living experience, offering tenants a high-quality rental environment. Rent increases are typically capped for the duration of the lease agreement.
For tenants, a BTR property differs from a standard apartment block where individual owners control their units. Many BTR developments are pet-friendly, allow tenants to personalise their living space (such as painting walls or hanging pictures), and offer longer lease terms, sometimes up to three years.
These properties often include additional amenities like gyms, yoga rooms, co-working spaces, and even dog-walking services, making them appealing to tenants looking for a more flexible and community-oriented lifestyle.
Benefits of Build-to-Rent
As the BTR model gains traction, both small private investors and large listed entities are entering the market, each offering unique advantages.
For Tenants
Longer leases – One of the main benefits for tenants is the ability to sign long leases, often up to three years, reducing the hassle of annual lease renewals.
Flexible lease terms – BTR properties often provide more flexible arrangements, such as allowing tenants to keep pets or make minor alterations to their apartments.
Modern amenities – Many BTR developments offer premium amenities such as gyms, wellness rooms, co-working spaces, and easy access to transport hubs and employment centres.
Community feel – These developments promote a sense of community, as shared spaces encourage interaction among tenants, making it easier to form connections, especially in a new area.
Matching lifestyle needs – Tenants can often move within the development to a different unit that better suits their changing needs, such as more bedrooms for a growing family.
Affordable housing options – BTR developments are also seen as affordable options for low- to moderate-income tenants, especially with some government incentives supporting the sector.
For Developers
Steady income – BTR projects provide a consistent income stream, making them attractive to large institutional investors, who value long-term asset holdings.
Higher returns – The added amenities in BTR properties allow developers to charge rents higher than the median for the area, typically around 10% more.
Cost efficiency – Developers can lower their costs by leveraging bulk services for maintenance or fit-outs, ensuring a cost-effective build and ongoing operation.
Drawbacks of Build-to-Rent
As with any investment, there are potential drawbacks to consider for both tenants and developers.
For Tenants
Higher rent – The premium for added amenities and security often means BTR rents are higher than the median for the area, which might be out of reach for some tenants, especially those requiring affordable housing.
New concept in Australia – As BTR is still a relatively new model in Australia, it’s important for tenants to research each development carefully, understanding the terms and conditions.
No ownership – While BTR offers many benefits, it still doesn’t replace property ownership. Tenants will continue to pay rent rather than build equity, especially in retirement.
Lack of regulation – Unlike traditional apartment complexes, which have a body corporate, BTR developments usually don’t have a committee since there is only one owner, potentially leaving tenants without a formal management structure.
For Developers
Riskier investment – Since the BTR model is still emerging in Australia, developers face risks related to high upfront costs for feasibility studies, marketing, and building trust in the new model.
