What is build to rent?

Build to rent is a type of commercial property development that can add additional housing to an area. These projects involve building a housing complex - often an apartment tower - whose developer retains ownership, rather than selling off individual units to owner occupiers and investors. The developer then rents out the units to tenants.

In some cases, the developer may get financial backing for its build to rent project from investors, such as a superannuation fund.

While already well-established in Europe and the USA, Australia’s build to rent market is understood to still be relatively small. Some governments around Australia are encouraging build to rent development, for example NSW has put tax concessions in place.

Build to rent pros for tenants

Tenants may be able to enjoy several potential benefits from a build to rent property that may not be available in similar properties, such as: 

• Fewer restrictions around modifying their living space (e.g. painting walls, hanging picture hooks etc) or keeping pets than in more traditional leases. 
• Being able to opt for longer term or more flexible leases, depending on their needs. Some renters may even be able to switch units within the same complex, for example upgrading from a two bedroom to a three bedroom unit when starting a family. 
• Access to shared amenities such as pools, shared outdoor spaces, BBQ areas, gyms, yoga studios, communal working spaces, community gardens and even cinemas.

Build to rent cons for tenants

A few drawbacks may also apply to tenancies in build to rent properties, which potential tenants will need to consider before choosing whether or not to take out a lease: 

• A property in a complex built to rent may not be the most affordable option available when it comes to leasing a place to live, especially if the complex comes with a variety of amenities. Longer leases also may not suit the needs of all Australians. 
• Because all of the tenants have the same landlord (the developer), there may be complications involved when there are problems compared to dealing with a more traditional body corporate or strata management organisation. 
• Build to rent complexes can limit the opportunity of tenants to purchase a property. As apartments in the complex remain in the developer’s hands, they won’t increase the supply of available properties to purchase in the area. This means renters may have fewer potential options to choose from if they do decide to buy.

Can individuals build to rent?

Building to rent is typically associated with professional property developers, often backed up by institutional investors such as superannuation funds. While it may be possible for an individual to carry out their own build to rent development project, the costs involved may be outside the easy reach of many everyday Australians.

On a smaller scale, an individual may be able to use a land loan and/or a construction loan to build a property with the intention of renting it out to tenants as an investment. However, as investment properties are generally considered to be riskier than owner-occupied properties, it may be harder to successfully apply for a loan to build a property to rent. 

It’s important to compare your available options, consider your personal financial situation, and think about contacting an expert such as a mortgage broker to make sure you select a finance option that best suits your goals.

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