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Build to Rent Development Finance

While Build to Rent (BTR), sometimes abbreviated as B2R, has gained traction in recent years, it remains a relatively fresh concept in the broader landscape of real estate.

Unless you're deeply entrenched in property development, you might have encountered the term in media discussions and pondered its significance.

Build-to-rent explained

The essence of Build to Rent is straightforward: it's a property development strategy crafted specifically to cater to the rental market, diverging from the traditional focus on long-term home ownership.

Although Build to Rent is currently in the limelight, its roots stretch back several years. Originating in 2012.

It gained prominence through initiatives linked to that year's Olympic Games, notably the conversion of Stratford's East Village from athlete accommodation to private rentals.

Since then, numerous large-scale developments have emerged, yielding thousands of new rental properties.

Many of these projects have received backing from the government and its Home Building Fund, marking a significant shift in housing dynamics.

The surge in rentals is multifaceted, prompting diverse perspectives and theories from various quarters.

From shifting perceptions of rental living to a dearth of affordable properties for sale, and from the enhancement of rental standards to the influx of transient workforces, each viewpoint sheds light on facets of this rental surge.

Exploring the Unique Features of Build-to-Rent Developments

Distinguishing themselves from conventional residential projects, Build to Rent (BTR) developments are tailored to cater to a distinct segment of the property market: those inclined towards renting rather than owning.

Beyond merely meeting contemporary living standards, BTR sites are redefining the concept of residential living.

While high-quality homes remain a cornerstone, developers are pushing boundaries by fostering mini-communities within their projects.

This entails the integration of communal spaces where residents can interact and forge connections.

These communal areas are diverse and innovative, ranging from conventional amenities like gyms and lounges to more unexpected features such as game rooms and shared dining spaces.

In essence, many BTR developments emulate the ambiance of hotels rather than traditional residences, with some even offering dedicated concierge services to tenants.

Benefits of a Build to Rent

Beyond the alluring features previously highlighted, Build to Rent (BTR) initiatives offer a spectrum of advantages, extending beyond the tenants themselves.

Surprisingly, local communities stand to gain significantly from these developments in various ways.

Consider the transformation witnessed at the Ferry Lane site in Walthamstow, spearheaded by Legal & General.

This endeavour has revitalised a dilapidated segment of E17, introducing 2,000 square metres of communal and commercial space that promises to invigorate the local economy.

However, the impact transcends mere economic gains; the regeneration project has introduced 200 new trees and incorporated diverse landscaping and ecologically sustainable planting areas.

While opposition to large-scale developments is inevitable, it's important to acknowledge the undeniable merits they bring.

These projects address the urgent need for better housing quality and offer long-term stability—a respite for renters weary of arbitrary evictions.

Nonetheless, the crux of the matter lies in affordability. Despite the array of benefits, the price tag attached often surpasses the means of many local residents, posing a significant challenge in the quest for accessible housing solutions.

Types of Development Finance

When looking for development finance it is important to identify the type of project being planned by the developer in order to access the correct funding product. Types of works can include:

ground up build development finance

Ground up builds

New builds nearly always require development finance loans. Once the project is completed, developers may use development exit finance as a more cost-effective solution, but this cannot be done before the project is watertight.

property conversion or restoration finance

Large scale restoration and property conversions

For this type of project, refurbishment finance is typically the correct type of loan to use, however if the project is larger than the norm, development finance may be a better alternative.

property refurbishment finance

Property refurbishment

A refurbishment loan, which is a type of bridging finance, is generally used for property renovations. It can be used for various improvements including, installing a new roof, general structural changes, building an extension, refurbishment, and decoration.

bridging loan property development

Bridging loan for property development

Property investors or developers may want to buy property which needs development or completion work still doing and are unable to get funding from their bank. This is a typical scenario when a bridging loan is a suitable alternative.

How is Development Finance Repaid?

Development finance loans are typically paid in one of the following three ways:

Paid in full

The total loan amount is paid in full, using the profits, when the project is complete, and the properties have been sold.

refinance with long term loan

Refinancing using a long term loan

This usually happens when the developer wants to keep the development for either personal use or for rental purposes.

development exit finance

Refinancing using a Development Exit Bridging Finance

This type of short term loan is often used to fund a new development project before the current project is sold. It can also be used to give developers a bit of breathing space to complete minor works and find buyers.

Frequently Asked Questions

Build-to-rent refers to a housing development model where properties are constructed specifically for the purpose of being rented out to tenants. These properties are often managed by a single entity or landlord, and the design and amenities are tailored to meet the needs and preferences of renters. Build-to-rent projects are typically large-scale developments that offer modern amenities, communal spaces, and professional property management services.

Buy-to-Let, on the other hand, involves purchasing a property with the intention of renting it out to tenants to generate rental income. Unlike build-to-rent developments, buy-to-let properties can be individual houses, apartments, or commercial spaces that are bought by individual investors or landlords. Buy-to-Let investors are responsible for managing their properties, including finding tenants, handling maintenance issues, and ensuring compliance with rental regulations.

The cost comparison between build-to-rent and buy-to-let properties depends on various factors, such as location, property type, amenities, and market conditions. Here's a breakdown:

Build-to-rent properties often feature modern amenities, such as gyms, communal spaces, and on-site management services, which may command higher rental prices. However, these properties may offer greater convenience and a higher standard of living for tenants, which could justify the higher rental costs. Additionally, build-to-rent developments may have longer-term leases, providing stability for both tenants and landlords.

Buy-to-let properties can vary widely in terms of rental pricing depending on factors such as location, property condition, and amenities. Investors may choose to offer competitive rental rates to attract tenants and remain competitive in the rental market. However, buy-to-let properties generally require individual landlords to handle property management tasks, which could incur additional costs and time commitments.

In summary, while build-to-rent properties may initially appear more expensive due to their premium amenities and services, the overall cost comparison depends on various factors and market dynamics. Both the build-to Rent and buy-to-let options offer distinct advantages and considerations for investors and tenants alike.

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