Property Management Blog

Big Corporations Gobbling Up Single Family Rentals (SFR)

KRS Holdings - Wednesday, October 30, 2019

The Changing Profile of SFR Landlords

Wall Street investment bankers are diligent and alert in seeking new opportunities to create marketable securities. And they did … largely driven by the recession. The vehicle was the issue of salable bonds backed by the asset value and cash flow from the purchase of single-family homes … most acquired at depressed prices.

Pre-recession, homeownership rates were 69.2 percent. While it has rebounded slightly from recent lows, homeownership has declined by over 5 percent from its high in 2004 to its current level of 64.1 percent … the lowest level since the 1960s.

A whopping 35 percent of all U.S. rental housing is single-family, free-standing units!

So, what does that mean for single-family residents and landlords?

Traditionally, SFRs were arranged by the property owners or small real-estate companies. Today, a large and growing share of SFRs are owned and managed by large corporations and financial institutions. That means for a budding number of families, the American Dream of owning their own home and the wealth and financial security that comes from it have given way to … renting a place to live from a distant landlord as an invisible piece in a securities portfolio sold to third-party investors.

This shift often creates challenges for renters … and significant opportunities for rental real estate investors that provide local hands-on professional property management.

Reactions recorded by increasing numbers of tenants who rent from the “big guys” trend to complaints that corporate landlords are slow to respond to renter’s requests. Often that appears due to a lack of local staff resulting in reliance on contractors engaged based on the lowest bid. Results: Skimping on repairs and maintenance and shoddy workmanship.

Clearly, the focus is to satisfy investors’ expectations for ROI. With the return of increasing home prices, opportunities to grow investment portfolios by bargain-basement purchases in the hope of appreciation have measurably shrunk. Therefore, the pressure will mount to squeeze more revenue from each house. Those circumstances could drive higher rents, added fees, accelerated evictions or cutting corners on other issues such as maintenance.

The Competitive Advantage for Individual SFR Investors

So as LARGE, IMPERSONAL absentee owners seek increased revenue and cut back on renter services, the opportunity for individual SFR investors is to deliver tenant service that exceeds expectations. And this becomes easier and less of a cash drain because the large institutional landlords’ rent increases pave the way for individual investors to do the same … while making their unique value proposition superior tenant satisfaction.

Alert! The following describes how KRS Holdings addresses that value proposition.

You may be reading this as an investor with one SFR, or a larger portfolio or maybe thinking about putting your toe in the water of investing in one or more single-family rental homes. Regardless, you must adopt a proven strategy of property management that minimally meets and ideally exceeds renter expectations.

You may choose to undertake that challenge as a DIY effort. Alternatively, you may engage a capable property management firm with a proven history of success in satisfying the needs of both tenants and investors. Either way, here ‘s a formula that will work for you if you go the DIY route … and one you should seek in evaluating a property manager.

Fix Your Tenant First … Then the Problem

There are 2 guiding principles for residential property investors to deliver tenant service that exceeds expectations. One is to relieve stress and tension in renter relations; the other speaks to maximizing profitability and asset appreciation.

Guiding Principle #1: People (all of us, you too) buy a product or service for what it does and how it makes us feel. Tenants don’t expect perfection and typically will be understanding when things break or other issues surface. How management handles the problem will be the differentiator to determine how the renter feels.

Guiding Principle #2: There is profit for you as a landlord to emphasize how your level of service makes your tenants feel satisfied. Fixing problems is good for your tenants and for you to protect your investment.

Let’s stay with Guiding Principle #1. Tenants seek a peaceful, safe place to live with a minimum of interruptions to basic comfort expectations. When the inevitable disruptions occur, how the property manager deals with the issues is what will be remembered by the renter plus create a building block in both tenant/owner relations as well as the reputation of the landlord.

So exceptional customer service (the customer being your tenant) is critical. And it’s not that difficult to achieve with a bit of self-examination and a commitment to exceed tenant expectations … without “giving away the store”.  A culture of being tenant-centric will engage you, your property management employees and contractors with a shared value to do the right thing when responding to tenant complaints and maintenance issues.

Critical Point: Tenant service is an “attitude” not a “department”.

Your culture must support that regardless of job function.

Empower your staff and contractors to fix things, on the spot, or encourage them to call for help when it's needed. The thing about responsibility is that it's most effectively taken, not given.

Here’s a three-step blueprint for success.

Step 1: Put yourself in the tenant’s shoes.

What happens when one of your tenants reports a repair or other deficiency? This is truly a “moment of truth” that will determine how your renter is treated as an individual needing help and not a complaining adversary. Show you care!

Smile

That works whether in-person or on the phone. Try it. Record your voice speaking the same words while smiling and unsmiling. You’ll be pleasantly surprised at how this communicates caring to the other person. In-person … make and maintain eye contact. You’ll stay more focused on the issues and your tenant will feel you are engaged.

Listen

I mean really listen. Ask clarifying questions to be sure you are getting the full picture of the issue. Then repeat back what you understand the problem to be and get agreement from the tenant that you understand.

Don’t Try to Win an Argument

You are trying to win-over the tenant. Said another way, you want to fix the renter, not just the leaky toilet. That means moving the customer from angry or disappointed to satisfied.

Take Notes

This will be an excellent reminder to you as well as communicate to your tenant that you are paying attention and are truly concerned with resolving the problem.

Step 2: Don’t lie.

Be sure to avoid making excuses … especially lame ones. Excuses are rightfully perceived by the tenant as your problem. Solutions are what they seek. Review options and alternatives and recommend the approach that you can definitely deliver.

Step 3: Act.

Perform on whatever solution you have promised. And then acknowledge that if you don’t follow up, you will foul up. That means check back in with the tenant to ensure that satisfaction has been achieved.

If you and your support staff execute as described, you will be amazed at the strengthened tenant relationships you will nurture.