Will the single family investment dream crumble before the realities of managing rental properties? Last year only about a third, 35 percent, of single family rentals made a profit on their rental income. The 3.8 million that lost money or broke even saw their owners’ dreams of a steady, annual rental income evaporate into the ether.
Lack of profits isn’t due to lack of effort. Nearly eight out of ten individual investors manage their own property. They run the ads, interview the tenants, fix the toilets, answer the midnight calls, cut the grass, collect the rent, evict the bums, then clean, paint and try to fill the vacancy as fast as possible. Some 18 percent of owners spend 25 percent or more of their time managing their rental property and 20 percent spend 20 percent or more of their rental income on maintenance, according to a major study last fall by the Census Bureau.
In the investment strategies popular with many investment gurus, the mantra these days is “buy and hold.” The hold part may end up being just as expensive as the buy part when crises strike.
Problems begin with marketing. Jon Pastor, CEO of Rent Jungle, which lists over 700,000 rentals from 12,371 web sites, agrees that the number of single family rentals is very large and growing? up 15 percent in the last 18 months. However, many owners turn over the marketing of their rentals to their real estate agents who aren’t professional property managers. The vast majority of single family owners are doing it themselves, and they are not knowledgeable about marketing rental properties, he said.
Entrepreneurs like Real Property Management’s CEO Kirk McGary says single-family investors get in trouble when they encounter things they don’t anticipate. “Things may go along fine for a while and then they discover asbestos in the basement or they have to evict someone and had no idea about local laws and regulations. Or they give the tenant permission to paint a room and he kicks over a can of paint. Who’s going to pay for new carpeting? Not the tenant, who can’t afford it,” said McGary.
Single family rentals have transformed McGary’s business, which is the largest property management company in the nation, but not everyone in property management wants to deal with the single family segment, as Pastor can attest.
McGary’s 200-plus franchises, whose fees are based on rental income, get 10,000 calls a day from tenants seeking help. Yet he admits the single family business is not easy. “In one apartment building you might have 500 tenants, one owner and one location. With single family, you have 500 owners and 500 locations for the same number of tenants.”
His solution is to automate and systematize functions wherever possible. He has negotiated partnerships with leading listing sites, communicates online with owners and emphasizes the importance of having a local professional staff who knows local landlord/tenant laws. Real Property Management also manages REO properties for lenders.
With 6.8 million single family properties still managed by owners and the number growing every day, McGarry looks forward to a busy future.