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Build to Rent - Will it Last?

Veteran international investor John Corey comments

On the surface, it makes sense. A company wants to be in the rental business, so they have stock built for them. You design for the needs of a rental tenant with BTR. Maybe that means additional amnesties or improvements. It could mean using materials and design elements that are longer wearing or making inspections and maintenance easier to complete. Extra traps in the drains, external cladding, which does not require repainting, and always-on passive ventilation to manage moisture build-up, all come to mind.

I grew up in the USA. Large apartment buildings or complexes are typical. Owned by a company with a team of professional managers and service administrators, the properties are efficiently run.

Why do I doubt it will work as well in the UK? Let me start by saying people are people, so most requirements for a tenant will be the same. The disconnect between the USA and the UK comes down to Zoning vs Planning. In the UK, we talk about what Planning designation applies to a site, and in the USA, we would refer to the Zoning for a place. In this article, we will assume Planning and Zoning are two labels for the same functional purpose.

A UK site may have planning permission for student housing. Given the planning designation, the rental units are available to students only. You cannot buy an individual unit, obtain a residential home loan, and make the property your primary residence. The building is valued based on the net cash flow it can produce rather than what an owner-occupant would pay to call it home. Very similar to any other commercial building where the value comes from the net operating income. A commercial valuation vs a 'bricks and mortar' comparable valuation. Residential property is valued by comparison to other sales because most residential units are not used to produce an income. While residential landlords buy the same stock, most transactions do not take place to generate an income.

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