Case Study: Analyzing a Build-to-Rent Community

Sycamore Creek is a 200-unit purpose-built rental community in suburban Raleigh, NC. The unit mix consists of 60 three-bedroom townhomes (1,400 SF, targeting $2,100/month), 80 three-bedroom detached homes (1,600 SF, targeting $2,350/month), and 60 four-bedroom detached homes (1,900 SF, targeting $2,650/month). Amenities include a community pool, fitness center, dog park, package lockers, and professional on-site management. The community is designed to attract households that want the single-family living experience—private yards, attached garages, no shared walls—without the commitment and capital requirements of homeownership. Total development cost is $72 million ($360,000/unit), financed with 60% construction loan converting to permanent debt at 5.8%.

Comparable apartments in the submarket rent for $1.65-$1.85/SF—higher per-square-foot but lower total rent because apartment units average 900-1,100 SF. Scattered-site SFR comps in the area rent for $1.35-$1.55/SF, slightly below the BTR target. The BTR commands a premium over scattered SFR because of professional management, consistent maintenance, community amenities, and the "hassle-free" renting experience. Compared to apartments, the BTR offers larger units, private outdoor space, and a more residential feel—attracting families and professionals who would otherwise buy or rent individual homes. Operating expense comparison: BTR OpEx runs $5,500-$6,500/unit (including management, landscaping, amenity maintenance, reserves), compared to $4,000-$5,000 for traditional apartments and $3,000-$4,000 for scattered SFR. The higher BTR OpEx reflects the larger unit footprint, individual HVAC systems, and community amenity costs.

Lease-up projection: BTR communities typically absorb 15-25 units per month in strong markets. At 20 units/month, Sycamore Creek reaches stabilized occupancy (95%) in approximately 10 months. Revenue during lease-up averages 60% of stabilized revenue due to phased occupancy and concessions (typically one month free during initial lease-up). Year 1 effective gross income is projected at $4.2 million vs. stabilized $5.7 million. Long-term return analysis under three scenarios: Base case assumes 3.5% annual rent growth (matching Raleigh historical average), producing a Year 5 NOI of $3.1 million and an unlevered yield on cost of 4.3%. Bull case assumes 5% rent growth with accelerated population growth, producing Year 5 NOI of $3.4 million and 4.7% yield on cost. Bear case assumes 2% rent growth with elevated supply competition, producing Year 5 NOI of $2.8 million and 3.9% yield on cost. At a 5.5% exit cap rate, the base case produces a levered IRR of approximately 14% over a 7-year hold.