Standing Strong in the Complex SFR Market
Investors Need to Streamline Their Processes to Optimize Efficiency
By Amy Daniel
The scorching hot single-family rental market has cooled in recent months, as the Fed’s inflation-fighting interest rate hikes have prompted investors to take a breather. Many of them believe that these increases and the pressure they exert on individual buyers and sellers will drive values down, making conditions right for investors to capture better deals in the months ahead. For the time being, following substantial growth in acquisitions through the first half of 2022, bulk securitizations and overall purchases have slowed, as both large investors and smaller community investors pause to consider their next moves.
All eyes are on the market, not so much because anyone expects rates to come down anytime soon, but rather because investors anticipate growing inventories of SFR properties in addition to the potential for better deals to come. They are taking a moment now to make strategic calculations as to when and where it may make the most sense for them to buy.
On the consumer side, potential buyers continue to focus on finding their ideal homes, although, like investors, many are waiting for market conditions to stabilize before taking the plunge. For those who have recently discovered they cannot afford quite as much home as they qualified for before interest rates began climbing, SFR properties offer an attractive alternative. As established renters have already found, renting provides the homeowner experience without the long-term commitment to a huge mortgage.
What do SFR renters look for in the homeowner experience? More privacy and indoor and outdoor space than apartments offer, a community atmosphere, and perhaps amenities such as a pool, a clubhouse with workout facilities, a playground, a dog park, walking trails, etc. Investors know that these features are what attract people, particularly younger generations, to the SFR space, whether because they crave the flexibility to easily relocate now that employers embrace work-from-anywhere policies, or they simply are not ready or able to commit the financial resources required to purchase a home.
And so, through build-to-rent communities and individual purchases, investors are fulfilling potential renters’ wish lists, striving to do so at price points these consumers can afford. While they may be pausing on making huge property investments at the moment, most of these investors look at SFR as a high-potential emerging market. They realize that if they get their approach right now, they will lay the foundation for years — even decades — of investment returns to come.
Riding Out the Storm
Hunkering down for what could be many more months of tight margins and market uncertainty, investors are working toward streamlining their processes to optimize their efficiency. Many are finding that working with a service partner that can manage multiple areas related to portfolio management, as opposed to relying on one provider for this and another for that, helps them do exactly that.
Think about it: In the current environment, every move you make as an investor, whether long- or short-term, is consequential. Having one partner you know you can rely on for title and close, valuations, inspections and other services frees you and your team to focus more fully on getting those strategic plays right. While it may take some doing to identify your ideal partner — few service providers offer such breadth of services — the payoff can be tremendous.
Ultimately, your partner of choice should be well-equipped to support you in these areas:
» SFR title and close. SFR transactions have their own nuances, meaning your partner should have a team dedicated to SFR title work and closings. In addition to being able to clear title quickly and accurately, they should offer options for closing anywhere you would like, through mobile notaries, local attorneys or eClose services. Expeditious document preparation, document review and recording services are also essential.
» Valuations. The circumstances surrounding every property and transaction are unique. Your service partner should offer flexibility in the valuations process and be able to tailor valuations to your particular needs, whether you require a traditional, hybrid or desktop appraisal; BPO; AVM; or some other form of valuation. Make sure your partner is keeping up with the evolving standards being put into place by Freddie Mac and Fannie Mae, too, as appraisal modernization is set to go mainstream in 2023.
» Property inspection and preservation. Having boots on the ground to verify that what you think you are buying is actually what you are buying is critical. When your partner physically inspects a home, you know exactly what is happening with that property. When the inspection coincides with closing, they will generally be able to rekey those properties for you in real time. If you need eviction services, they may be able to provide those as well.
Additionally, some service partners help ensure properties you are holding do not fall into a state of neglect by providing property preservation services. If that is the case, you may want to evaluate whether that partner may be more effective than contractors you have used in the past, due to their fuller understanding of your business and goals.
» Asset disposition. A service partner that can support you in the disposition of properties adds even more value to your relationship. Again, that full understanding of who you are and where you would like your business to go enables them to help you assess available disposition options and make well-informed decisions.
The Long-Term Outlook for SFR
Though rates may not come down in the near future, the market will, at some point, stabilize in terms of both interest rates and home prices. Once consumers get comfortable with the going rates in the new normal, demand for SFR properties will certainly begin climbing once again.
Investors who have prepared for this impending uptick — by streamlining and perfecting their approach — will prevail.
