Rent-to-own financing: what lenders need to see

It’s no secret that single family rentals (SFR) and houses for rent (BTR) are in high demand. This type of product offers households plenty of space and mobility, without worrying about the high costs of home ownership. As more tenants want to live in SFRs, more developers are jumping into the space to offer BTR homes and communities.

John Hutchinson of Trez Capital

We see two basic types of BTR products. First, single-family homes built on flat lots that make up an entire neighborhood of rental homes due to a developer’s control of multiple lots. The second is what we call “horizontal multifamily” – these homes are not built on flat lots but are flat like an apartment project would be flat, usually built on commercial land that is rezoned to allow for this type of product.

The demand for financing is strong, but this asset class is still relatively new, so there is great uncertainty about how to obtain financing for development. BTR houses are different from apartments and houses for sale. For this reason, lenders want the following from BTR borrowers.


Lenders want assurances that developers have a track record with similar types of properties. “Similar,” in this case, means the developers have previous experience with single-family homes for sale or rent. Although the structures being developed are intended for rental rather than sale, the development of three and four bedroom homes requires different knowledge of zoning, plating, labor, types of products and construction requirements, compared to multi-family structures.


Developers involved in the sale of single-family homes can offer lenders pre-sales and anticipated sales figures. This is not the case for BTR developers. BTR borrowers must offer measures of net operating income, as well as projected rental rates and expected increases. Other figures may include loan-to-value estimates and capitalization rates.

Market conditions

Lenders want to know that BTR developers understand the region and market conditions in which they are proposing to build. This requires well-researched market research focused on the following:

Provide. In this case, “supply” refers to rental units, as opposed to homes for sale. Information should consider single-family rental homes and apartments located within a 10-mile radius of the target development site. It is important to include all apartments, including those currently under construction.

Request. Just as important as providing supply figures is highlighting measures of housing demand. Basic information should include population growth (especially families with children) and employment growth in the area. The lender wants to be sure that there are enough households in the target area to absorb the supply and that those households can afford to pay the asking rent. Psychographic information is also important, as it explains why households would be attracted to BTRs over apartments.

School districts. School district rankings are indispensable in this study, due to BTR household demographics. Families with children are likely to be the first tenants; these families will want to be in neighborhoods with higher ranked schools. If these schools are close to the targeted development site (within walking distance), this is another added advantage to highlight.

Neighborhood amenities. Ideal neighborhood amenities for BTRs should include community retail businesses (groceries and pharmacies), healthcare facilities, and family restaurants and entertainment. An added benefit includes pocket parks, recreational facilities, and hiking and biking trails.

Capital is available to finance BTR’s developments. We were one of the first lenders to recognize this opportunity back in 2017 and are now one of the leaders in the United States when it comes to financing this type of product. We have expanded our financing in the space, and there are indications that this type of product will be in demand for the foreseeable future, but lenders are looking at different home rental requirements. A borrower’s ability to access BTR financing depends on proving to the lender that the product will appeal to the target audience and generate sufficient cash flow.

John Hutchinson is Vice President and Global Chief Creative Officer of Trez Capital.

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