Service Must Balance Main St., Wall St.

IRVINE, CA-The institutionalization of buy to rent begs for the creation of a new class of managers and service providers that can scale to meet the needs of these investors, reports RealtyTrac in a recent white paper. The most successful of these players are able to combine the “Main St.” operating capabilities with “Wall St.” analytics to analyze asset efficiency, communicate with sophisticated investors, scour “big data” and stay on top of emerging trends, according to the research firm.

As GlobeSt.com reported earlier today, institutional investors will likely expand their single-family-rental holdings into 2014, but this expansion is likely to be decidedly more restrained than the binge of the past 18 months, according to the white paper. Large investors have restructured their acquisition programs around the preferences of public-market and securitization investors—seeking a combination of yield, occupancy and collection standards that are valued by the public markets—the investors who are likely the ultimate owners of these assets, the firm reports.

Roughly 14 million of the almost 90 million homes in the US are owned by third parties and rented, RealtyTrac reports. Traditionally, smaller investors tended to buy homes in areas they knew, where they had a deep knowledge of the neighborhood where they were acquiring these homes, giving them the advantage of understanding when a home was mispriced. They also had no committed timelines to deploy capital, can wait for the right time and can often move quickly to snap up single properties at below-market prices as opportunities arise.

But, RealtyTrac continues, while small investors could acquire properties efficiently, management was often less efficient. In some cases, the investors would manage the properties themselves, collecting rent and repairing the home as needed. These investors were served by a wide array of property managers, brokers and service providers, each with their own standard of performance, pricing and ethics.  Many investors believed that their investments were well-managed and were pleased with performance. However, since these investors often held their assets for many years and did not account for the cost of that capital, true investment returns were difficult to monitor.

As the SFR industry becomes more mature, market standards are likely to rise even further, according to RealtyTrac. Tenants can use social media to share information about a specific property and their experience with the service providers and property managers. The popular press has already taken up the theme of “Wall St. as your new landlord” and reported several specific negative tenant experiences, which may make potential renters leery of investor landlords. As a result, investors will increasingly press their property managers to develop the high service standards found in large apartment buildings, to better understand their tenant demographics and to effectively communicate with the tenant base.

According to RealtyTrac, property managers must have a strong, local presence to manage operations and investments closely and ensure positive rental outcomes, good tenant relationships and low vacancy rates. Local property managers can manage tenant relationships and rent collection in such a way that tenant issues and delinquencies are resolved quickly, and customer-service specialists can foster positive, collaborative relationships with tenants.