A country-wide interest in purpose-built rental buildings continues to gain steam, as developers move away from a focus on condos to these condo-adjacent buildings designed for renters. These buildings present curious opportunities for investors while also having an impact on the livability of a particular city or town.
addy’s investment opportunity in Mission, B.C. is a purpose-built rental. We’ll take a look at how they work and why they’re likely already in a city near you.
What are purpose-built rentals?
Simply, purpose-built rentals are developments made with the intention of renting out the individual apartments instead of selling individual condo units. Whereas 10 and 20 years ago, many major real estate developments were condominiums, purpose-built rentals (PBR) are solely intended to be rented out, with a corporation in most cases acting as the landlord.
In recent years, developers have moved more towards building PBRs over condos, but these similarities between the two are many. They’re both often tall buildings with plenty of amenities, which may include a fitness centre, movie theatre or yoga studio. They also usually feature a concierge, just like many condos. Indeed, developers market rental buildings as “hotel-inspired” or “rental condos” to attract new tenants.
Why is there an increase in purpose-built rentals?
Increasing housing prices continue to shut out many from the housing market, which means so many people, especially millennials and Gen Zers who may be cynical or discouraged about home ownership, are turning to rentals.
However, there is a scarcity of rental housing availability. This demand, paired with low interest rates, means more developments and investors are turning to purpose-built rentals as a safe and potentially lucrative investment.
Certain munipalities may have different parameters or incentives around purpose-built rentals as well. Some bigger cities, like Toronto, may try to sway developers more towards rental buildings than condos, allowing them to defer payments or lowering upfront costs.
Are purpose-built rentals good or bad?
Tenant pros and cons
Creating more housing is generally good, because so many cities big and small are in need of housing. Fro example, Mission’s rental market was deemed “constrained” in 2020 with only a 1.6% vacancy rate. As people move out of the big cities towards larger, greener pastures where they can work remotely, smaller cities are in need of housing too.
There are some benefits to renters. Most developers make PBRs with longevity in mind, so they can withstand multiple parties moving in and out over years, which means they tend to be durably designed in order to minimise costs.
Tenants often fear being forced to move out of an apartment when a landlord claims their family is moving in; this is often done so that the landlord can jack up the price immediately instead of being forced to abide by rent control measures. This excuse, however, doesn’t often hold up with PBRs. As many are owned by corporations instead of individuals, they can’t reasonably say they are moving into the unit.
However, some cities have removed rent control measures. In Toronto, any rental unit first occupied after Nov. 15, 2018 is not subject to rent control, which appeals to investors looking to capitalise on their investment, but does not help tenants seeking a fairly-priced place to live. In such a situation, the ‘purpose’ of the purpose-built rental isn’t necessarily about creating more housing opportunities if potential tenants can be priced out.
In B.C. where the Mission development is located, rent can only increase by 1.5% in a 12-month period, which will help serve the social benefit of the Maple View Heights apartment.
Investing pros and cons
When it comes to investing, many are focusing on purpose-built rentals for reasons beyond just the booming demand. The opportunity to set a rental price after construction instead of selling condos before the development is finished is quite attractive. Prices adjust to current market settings and are not negatively influenced by inflation. For example, if you sell a condo at a certain price but that condo isn’t built for three years, the condo owner may have already seen the value increase while the developer may have lost out on a potentially higher price.
Still, financing can be difficult, as condo development often sees more upfront money to fund the project. What’s more, finding the right corporate landlord can be tricky.
Investing with addy
Like most investments, the time to put your money into purpose-built rentals was yesterday.
addy’s team of experts constantly seeks out institutional grade commercial real estate opportunities like our current purpose-built rental development in Mission. There may be more to come down the line, so if you don’t want to miss the opportunity, join the crowdfunding cause today.
