Competing in a Challenging SFR Market
Acquisition Strategies to Grow Your Portfolio
By Jamie Rey-Hipolito
The single-family rental market is not for the faint of heart. With the lack of available inventory that has become a hallmark of the pandemic-era housing market, real estate investors are feeling the pinch (with even the most seasoned investors having a difficult time navigating it). As someone who has been in the industry for more than 20 years, I have witnessed a lot of change in the SFR space in that time and while there are a lot of challenges for investors today, there is also ample opportunity.
Emerging SFR trends to watch
Due to the challenging housing market, investors have had to get creative in order to compete. Several trends have emerged in the SFR space over the past two years, that will continue to make waves for the foreseeable future.
Take, for example, the build-to-rent phenomenon. Because inventory has been such a challenge, many investors are opting to build brand new housing that can be immediately rented out instead of sold. As many would-be homebuyers have been priced out of the market or, have opted to pause their home search until the market levels out a bit more, renting has remained an attractive option for them to consider.
While the cost of materials and supply chain issues have created obstacles to these new construction efforts, it has still been a bright spot for many investors who are open to doing things a bit differently. Additionally, short term and vacation rentals have been another option that has been top-of-mind for investors looking to grow their portfolios. Today’s youngest buyers, millennials and Gen Z, seem to be the most receptive to this idea.
According to my company’s latest State of Homebuying Report, that included findings from a survey of 1,000 homeowners who had purchased a home within the past five years, millennial and Gen Z buyers were most likely to report that their reason for purchasing a home was to leverage it as an investment property or source of rental income (14% compared to 7% of Gen X and 3% of baby boomers).
Some investors are open to purchasing a portion of a luxury home with several others and renting out certain weeks to travelers looking to vacation in style. As these new trends continue to influence the SFR market, investors will need to find new ways to work smarter, not harder, in order to be competitive.
How to compete in a challenging market
Whether you have three SFR properties or 300, the following tips are helpful to keep-in-mind as you continue to grow your portfolio.
1. Prepare to take risks
Being risk-averse in today’s housing market is not going to cut it. Investors need to be prepared to jump at SFR investment opportunities at a moments notice. There is no “going home to think about it” anymore — especially with multiple bids on a single-family home becoming the norm and the typical home spending just 38 days on the market according to Realtor.com’s latest Monthly Housing Market Trends Report from March 2022.
Therefore, investors should do ample research about desired locations where they are looking to grow their portfolio so they can make their best-informed decision — especially, when they may not have a lot of time to tour the property in-person or may need to waive an inspection altogether to snag the home away from other interested parties. Taking healthy risks is important if investors are looking to grow their portfolio quickly.
2. Have funds fully available
As housing affordability worsens, interest rates rise and the amount of available housing on the market remains at dismal levels, investors and everyday consumers alike have a lot stacked against them.
According to the National Association of Realtors®’ most recent quarterly report, more metro areas (70% of 185 that were measured) experienced a double-digit price increase in their median single-family existing-home sales price from the previous quarter. To combat rising home prices and more competition for fewer homes on the market, having easily transferrable funds on-hand will improve investors’ ability to remain nimble in a market where homes are being snapped up at a record-setting pace.
While this may seem to be challenging, especially for novice investors, it is something that is critical as inventory remains low and competition remains high.
3. Be open to new markets
Investors must think beyond historic hot spots like Las Vegas or California and, instead, consider new areas that are not as saturated with other investors and homebuyers with whom they may be competing for inventory.
For example, consider up-and-coming suburbs outside of cities as people continue to work from home and seek out more space to rent. Additionally, considering purchasing an SFR investment property in historically college towns could be another route to explore since large SFR investor groups tend to shy away from these areas due to restrictive laws.
Speaking of laws: investors should also familiarize themselves with zoning ordinances and municipal laws surrounding the conversion of a single-family home into a SFR property (especially in college towns).
4. Embrace auction and buying sight unseen
The auction space continues to be one that is primarily dominated by investors, so it remains a great venue in which to scoop up inventory quickly.
However, this “best kept secret” is starting to make waves among everyday consumers too, so it is not without competition. For example, ServiceLink’s State of Homebuying Report revealed that 33% of consumers would consider purchasing a home at auction and 11% had already purchased a home this way.
Nevertheless, this option is still viewed as a more nontraditional route, so investors should continue seeking out inventory in this fashion. Additionally, as more online and remote bidding auction opportunities become available, investors can bid on properties from the comfort of their homes instead of standing shoulder-to-shoulder with fellow investors and homebuyers on the courthouse steps, saving them precious travel time and gas money.
5. Do not skimp on maintenance
Something a novice SFR investor may overlook, especially in a housing market that requires them to operate at break-neck speed, is continued maintenance and property preservation. Savvy investors know that, in order to have continued success as their portfolios grow, property preservation needs to be a priority and not an afterthought.
In an SFR rental situation, your tenants may not always treat your property with the same level of care as you would. Normal wear and tear, if left unchecked, can become costly to the investor and hazardous to the tenant. It is easy to get overwhelmed with routine maintenance and repairs, especially with a rapidly growing portfolio.
My advice? Leave it to the experts. For example, ServiceLink offers field services management to help investors preserve their properties. Providing services like grass cutting, snow removal, winterization and repairs helps to relieve the investor of these tasks, saving them precious time and money.
