Single-family rental (SFR) properties are typically a collection of houses for rent, which are pooled for investment and spread out geographically. Historically, these were owned by families but a new trend of building platforms of homes started after the Great Recession. They’re generally detached houses in suburban neighborhoods with a yard and garage and offer residents more space and privacy than apartments. Market leaders include Invitation Homes, Progress Residential, American Homes 4 Rent, First Key Homes and Tricon.
SFR investments are booming in the U.S. with no signs of a slowdown, as investors flood into the hot, evolving asset class. Additional reasons SFRs are attractive include unprecedented occupancy, rent growth and profitability as families look for more space following the tailwinds of the pandemic.
For the aforementioned reasons, SFR is the fastest-growing segment, accounting for 35 percent of the nation’s 44 million rental units, according to The Urban Institute. SFR is already estimated to be a $3.4 trillion market compared to the $3.5 trillion multifamily sector according to a recent report by Walker & Dunlop.
SFR has become a “darling” of real estate coming out of the COVID-19 pandemic, giving the sector an even bigger boost. Walker & Dunlop predicts that SFRs will outpace multifamily, office, retail, storage and hospitality growth by 2022. As demand accelerates, more investors – including large institutional players – are getting in on the action and expanding their investment strategy to include SFR assets. Billions of dollars are pouring into the red-hot sector.
The bulk of the institutional investment dollars are flowing toward established SFR operators and property managers. These operators (and their investors) understand the importance of differentiating their properties from ever-increasing and fierce competition. One meaningful way to differentiate is through better operations, specifically in Renovations & Maintenance (R&M). Better R&M leads to less vacant days and a better resident experience while occupied. This can help lead to a virtuous cycle, including less churn and higher rent in addition to keeping the asset strong.
Operators need to demonstrate the ability to drive market-leading NOI in order to continue to attract institutional capital. At Mezo, we can help you take control of your maintenance operations. Our technology creates a better resident experience and drives down operating costs by eliminating low-value, repetitive processes.
A confluence of events is accelerating the SFR frenzy. There are three categories of new renters: the wave of millennials starting families, aging baby boomers, and households seeking more space for remote working spurred by the pandemic, according to research from MetLife.
For millennials, the high cost of homeownership is crowding them out. Millennials are becoming parents, and many want the “American dream” of owning a home with that big backyard. However, they’re burdened with student debt and a lack of savings. Nearly 70 percent of homebuyers in the millennial sector say debt is delaying homeownership, the research found. At the same time, MetLife estimates the average down payment requirement has nearly doubled between 2010 and 2020.
Single-family rentals are increasingly recognized as a good alternative to ownership while offering all of the perks, including space and privacy.
On the other side of the spectrum, baby boomers have their own financial challenges. Many are dealing with issues around social security, pension challenges, and lower savings rates, while medical costs continue to soar. Uncertainty about their standard of living in retirement has partially fueled a rise in rentership among the older generation, who may use home equity to unlock retirement funds, MetLife noted.
Meanwhile, the impact of the pandemic cannot be underestimated. The health crisis drove immense increases in remote working trends and created a demand for more space in the home. It also fueled more people to move from urban cores to the suburbs where much of the SFR product is located.
Additionally, some people are simply renters by choice. They can enjoy the benefits of a single-family home without long-term commitments and avoid the headaches of maintenance and repairs.
Robust demand for SFRs is spurring record-breaking occupancy for Owner-operators. The national occupancy rate for SFR properties in 2021 was 95 percent, 2 percent higher than apartments, as reported by RentCafe. Another bonus for SFR Owner- Operators is single-family rentals tend to turnover less often than apartments.
As reported in LoopNet, Invitation Homes President and CEO Dallas Tanner said that the resident in a single-family rental home has a “75 percent to 80 percent renewal rate” and stays in the home for three years. That’s twice as long as residents in apartments. Invitation Homes is the largest Owner-Operator of single-family rental homes in the U.S.
Resident satisfaction is a key criteria for the renewal decision. Maintenance is a key touch-point between residents and landlords. At Mezo, we help deliver a superior resident experience upfront and empower your maintenance team (or vendors) with better visibility into what they’re walking into so that they can resolve an issue on the first visit.
Happier residents help Owner-operators justify the uptick in rent. In fact, single-family rent prices jumped 12 percent in December 2021, the fastest year-over-year increase in nearly 20 years, according to the CoreLogic Single-Family Rent Index. Rent prices expanded by more than three times the 2020 rate, the index stated. Miami led the way with a 35.7 percent increase in SFR rents over the previous year, followed by Phoenix with 18.9 percent.
More than $50 billion in capital is chasing the single-family rental and build-for rent sectors, according to a new report by John Burns Real Estate Consulting. But for both new and existing investors and Owner-operators of SFR properties to be successful and drive profitability, they must crack the operations riddle. Maintenance is roughly 20 to 30 percent of an owner’s operating expenses - and the largest controllable cost (i.e., not property taxes).
SFR maintenance is inherently difficult due to the geographic sprawl of SFR portfolios. This geographic dispersion makes a “wasted maintenance trip” extremely costly. The cost of “windshield time” for maintenance technicians is high – roughly $80 to $100 an hour for an in-house ticket and ~2x that price for an external vendor. Additionally, wasted trips hurt team morale and frustrate residents. It’s critical that technicians know what they’re walking into and confirm that they’re the right technician and have the right parts and tools before they spend the time driving to the home.
This is where new Property Technology (PropTech) comes into play. At Mezo, we are focused on new innovations in Property Management technology that helps eliminate wasted trips. We’ll make your in-house team more efficient and reduce your need to rely on more expensive 3rd party vendors. We’ll help you get your homes “back to healthy” on the first trip and provide you visibility to maintain your assets.
We are taking a new approach at Mezo to track maintenance and fill the void most acutely felt in SFR. We partner with forward thinking Owner-operators who believe it’s necessary to differentiate themselves from the competition – and drive NOI – through better operations.
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