The UK’s build-to-rent (BTR) sector is growing, with almost 16,000 developments already built, almost 21,000 currently under construction, and a further 47,000+ with planning permission, but still accounts for less than 1% of the homes in the UK. This is because the BTR sector is competing with the private residential development sector for the same land – these private residential developers being the ones that build their apartment-blocks with a view to selling each individual unit on, either to homebuyers or to buy-to-let landlords.
Of course, this means that you are going to need to outbid these private developers for the land you want to build on – which is no mean feat. Are you doing everything you can to ensure that you can win and still maximise your profits? Your success as a developer and an accommodation provider will depend on your ability to maximise your opportunities. In this article, we’ll explain a few of the tricks the US multifamily housing sector uses to beat the condo developers.
Build More Units in the Same Footprint
BTL Developers avoid the ongoing costs associated with amenity spaces and are therefore forced to build bigger units. By including amenity spaces and social areas in the design of your development, the apartments themselves can be more economical with space – and therefore you can fit more apartments in overall.
As well as helping you maximise your rent-revenue potential, these amenity spaces will greatly benefit your residents too. Many young professionals who work and live in big cities like London feel lonely, so offering them spaces that help them to mingle and socialise with other residents – leading to more renewals at a higher rent.
Become a UK Real Estate Investment Trust (UK-REIT)
A UK-REIT – as defined by the London Stock Exchange – is “a single company that owns and manages the property on behalf of shareholders”. (An owner-occupied building cannot become a UK-REIT, but BTR developers certainly can.)
Having UK-REIT status is more tax-efficient for you, because it means you will not have to pay corporation tax on your profits and gains. There are several more benefits on top of that – for you and for your investors.
REITs have been commonplace in the US for decades and were finally introduced to the UK in 2007.
Maximise Your Marketing Budget
Marketing is expensive, but it is a necessary cost. Think about it: BTL developers will need to spend on marketing, and BTL investors will need to pay a large percentage of their rent-revenue on marketing. BTR developers can either choose to use the buying power of large-unit concentrations to pay less, or to use the full budget amplify the money via branding, reputation management, SEO, and PR.
Integrate Your Technology to Maximise Efficiency
There is sophisticated software and technology out there that you can use to make your systems more efficient, thereby making your entire operation more cost-efficient.
- Integrate with portals and letting agents to remove the hassle of digital admin (listings on third-party sites, etc.)
- Offer ‘amenity pricing’ and pick up all the hidden value in the small-unit differences, views, and small-unit upgrades
- Set up real-time pricing to allow your rent prices to fluctuate accordingly with the rental market as a whole
- Utilise work-order systems, so that your property teams can streamline operations, accurately budget, and start mining the data that is needed to properly manage the property
Capitalise on Your Buying/Purchasing Power
As a BTR developer, you have the buying power to leverage with your suppliers. If you can get this right, you will save a great deal of capital – both initially and on an ongoing basis.
Most manufacturers and distributors offer rebates and bulk pricing. BTL developers are maximising buying power, so you should too. A professional purchasing team should save 15-25% on all the spend managed through their processes. Maybe not on each individual type of item, but certainly on aggregate.
Build for Easy Maintenance
From the outset of your BTR build, easy ongoing maintenance should be a top priority. The modern tenant expects quality, so you need to deliver it. Purchasing 15-year vinyl flooring will help avoid the problems generated when buying the low-cost flooring. Keeping a few extra tiles under the stove ensures the same dye lot and a perfect match for the one-off tile replacements needed in the future.
Using a washable, hard-wearing, dead-flat paint will mean that it lasts years. Tracking the actual paint colour used (on a sticker in the electrical box) will allow your service teams to easily touch up the paint after wall damage without you having to purchase a full repaint. Installing water-softeners will help to avoid some of the scaling problems UK’s extremely hard water can cause on anything it touches. It’s also wise to install accessible shower cartridges, ceramic faucets, and LED light bulbs with common fixtures – all of these will save you time and money in the future.
Find Ways to Earn Ancillary Income
Your residents need services while staying at your properties, and therefore there are some marketing/money-making opportunities for the owners that ask their tenants what they need. For example:
- Approach broadband and TV providers with the proposition of them becoming the sole providers within your building, paying you a sales/marketing commission
- Offer your tenants extra services such as utility packages, concierge services, maid services, laundry services, conference-room hire, extra storage space, parking, furniture, moving services, and specials from your favourite neighbourhood hangouts (with each service provider paying a little commission for your marketing help)
As a value add consultant, my goal is to earn an additional 10-20% of rent for my partners via these types of contracts.
So, here are your key takeaways:
- Build more units in the same footprint, to maximise your rent-revenue potential
- Become a UK-REIT, to significantly increase your tax-efficiency
- Be smart with your marketing budget and stretch it as far as you can
- Utilise modern technology and software to increase cost-efficiency and to make quick wins
- Leverage your purchasing power to enjoy bulk-pricing and rebates from suppliers
- Build and furbish for longevity and easy maintenance
- Explore ancillary-income opportunities that will boost revenue by 10-20%
Contact Fjeld Consulting to Streamline Your BTR Venture
At Fjeld Consulting, we have the expertise and the practical experience that will make your build-to-rent business more efficient and more profitable. Contact us for more information.