Last modified on August 31st, 2021
By Brittany Benz
Single-family rentals, also known as SFRs, are a hot market right now. And while SFRs aren’t a new commodity, seizing upon this market requires property management companies to respond to very recent trends and technology, as scaling up a portfolio with more and more SFRs can challenge even the most seasoned property managers.
Chief among these aforementioned trends are those set in motion by the pandemic, which spurred an exodus of renters from urban centers into the outlying suburbs, where affordable, spacious SFRs are more common.
Responding to demand, we’re seeing a greater number of property managers add SFRs to their portfolios. However this opportunity doesn’t come without challenges. Compared to multifamily properties, for example, SFRs tend to be geographically dispersed and managed by a single owner and manager. Additionally, maintenance can be more difficult since every home comes with different appliances and needs.
These factors and more create conditions that require an exponential investment of resources: time, energy, and people. But this doesn’t have to be the case. Developing alongside the rapid growth of the SFR market are new advancements in property management technology, which close geographical gaps and greatly reduce time spent on repetitive tasks.
In this episode of The Top Floor, we discuss everything you need to know about SFRs: what’s heating up the market and how you can successfully join without getting burned.
Meet our guests
Scott Abernathy is the President at Property Management Inc. and PMI Professionals. He received his real estate license in 1994. In 2006, he joined the National Association of Residential Property Managers (NARPM), where he served as the vendor chairman of the Nashville chapter before becoming the chapter president in 2010. Scott is also a member of the National Government Affairs Committee, where he served as the chairman for two years. He was later elected the Atlantic Regional Vice President, before becoming Treasurer and finally National President.
Brad Larsen is the owner of RentWerx Property Management, which is based in San Antonio, Texas, and manages roughly 900 single-family homes with over 750 owners. Brad is also the host of the podcast, Property Management Mastermind Show, which contributed to the creation of the Property Management Mastermind Conference.
Bob Preston is the president and CEO at North County Property Group, which was founded roughly two decades ago and has offices in San Diego County, California. NCPG primarily focuses on high-end properties. Bob is also actively involved in NARPM, where he is a Master Property Manager. He has served as the president of the California chapter and remains involved as a mentor and advisor for the chapter, as well as a board member of California NARPM.
Sean: You’re listening to The Top Floor, a podcast featuring critical conversations around property management, community associations, and real estate investing. I’m your host, Sean Forster, industry trend researcher at AppFolio.
Every other week, The Top Floor will explore change, innovation, and opportunities for the future. With help from thought leaders and change-makers, we’ll give you inside-access to our world at the height of industry disruption.
Now let’s turn it over to Megan, who will take us through the episode.
Megan: Single family rental homes have been more in-demand than ever over the last eighteen months. During that time, families have increasingly migrated from densely packed urban centers to the suburbs, where affordable, spacious single family rentals are more common. But to successfully manage so many geographically separated properties, each with unique needs, more property management companies have been pushed to adopt new technology that allows them to better serve both the needs of property owners and residents. Today on The Top Floor, we’re discussing everything you need to know about single family residences, aka, SFRs — you’ll find out what’s heating up the market, and how some of the savviest property management professionals are making the most out of technology to capitalize on it.
Megan: Alright, a quick note before we begin. Today’s episode is broken up into two parts. First, we’re going to tackle the question: why is the SFR market so hot right now? To get to the bottom of it, there are a few trends we’re going to look into: renters want more space, and the growth of remote work allows more knowledge workers to migrate to more affordable, suburban markets. We’ll also take a quick look at why these trends are helping to make single family rental properties more popular among investors. Second, we’re going to take a look at how property management companies with majority SFR portfolios are preparing for the future. But before we get into any of that, we first need to step back. Compared to other property types, there are many factors that make SFRs unique:
Scott Abernathy: What separates what I call scatter site properties, and you’re referring to them as single family, because it’s really not just single family properties. It also would include things like quadruplexes, duplexes, the small multifamily as well, is that you don’t have the economies of scale that you have with an apartment building.
Megan: Scott Abernathy is the President at Property Management Inc. and PMI Professionals in Tennessee. He’s a member of NARPM, where he served as the vendor chairman of the Nashville chapter before becoming the chapter president. He’s also a member of the National Government Affairs Committee, where he served as chairman for two years. He was later elected the Atlantic Regional Vice President, before becoming Treasurer and finally National President.
Scott Abernathy: Let’s face it, your maintenance technicians are working on an apartment building in a golf cart. You can’t exactly do that whenever your inventory is spread over a 100-mile radius. All your toilets are not going to be the same. The appliances are not going to be the same. And the services that you give to your residents are not going to be the same as an apartment community. You’re not going to be mowing their yard for them or cleaning their pools, things like this.
Scott Abernathy: So there are very big, vast differences between. Here’s the biggest, actually, I would say. That’d be your clients. If you’re running an apartment building, you most likely have one client. We have hundreds of clients for our inventory. Which means we have hundreds of bosses that we’re answering to also. I think those would be the chief differences.
Bob Preston: Well, I think the main uniqueness is that each property is unique, right?
Megan: Bob Preston is the president and CEO at North County Property Group in San Diego, California. Bob is also actively involved in NARPM, where he has earned the Master Property Manager designation.
Bob Preston: So we have some properties in our portfolio that are pretty complex. A couple of properties we have rent for over $10,000 a month, one property that’s in that category, you’re along a golf course. … That particular property has three HPAC units and four water heaters, for example, six bathrooms. So, that in itself makes the property a little bit more complicated. And if somebody is paying that much in rent, is also going to want to have and will demand really high service, right? So you have to be on your toes, you have to be available, you have to be extremely responsive. I’m not saying that people who manage multifamily or HOAs is not responsive, I’m just saying that people who are paying that much, they’re going to demand a high level, high SLA, if you will, Service Level Agreement.
Megan: Again, SFRs differ in several ways from other types of rentals, such as conventional multi-family properties. Spotlighting these differences is Brad Larsen, the owner of RentWerx Property Management in San Antonio, Texas.
Brad Larsen: The biggest one is clearly the distance because in multi-family you have a captive audience, you have – call it for fun – you have a 500 unit multifamily complex. They’re all right there. They’re all within golf cart range of the main office. And it’s not like that in single-family homes. You may be spread out 45 minutes to an hour from the office. And that can be a bit of a challenge. You may have homes that are downtown and 50 or 100 years old, or you may have homes that are brand new in the suburbs, in those brand new neighborhoods that are six months old.
Megan: To better understand why SFRs are in demand, right now, let’s hear what the market looks like on the ground in California, Texas and Tennessee – where our podcast guests are located – to find out what’s heating things up.
Bob Preston: Yes. I think that the demand is higher than ever, I think in large part, because … Well, this is my … This is Bob’s theory on this. The rental market is hot right now.
Megan: Bob Preston, again.
Bob Preston: I think what happened is when the job market got tough and there were a lot of layoffs, we had a lot of people leaving the bigger cities like San Diego, because they could go… They were either working remotely or they were laid off. So they could pretty much go anywhere to work. And now it feels like things are opening back up, companies are calling their employees back to work and the rental market is tight in San Diego county. I think it’s that way, pretty much all over the U.S and for sure, all over California, and that’s driving high demand.
Megan: High demand means more inquiries. And that comes with growing pains.
Bob Preston: So it’s putting some new burdens on us now, because in some ways the high demand is breaking some of our processes, like being able to respond to all the inquiries we get, we put a house on the market and within an hour or two hours, we’re already taking unsolicited applications.
Bob Preston: People who haven’t even seen the property, but trying to get in early and get their application in first, trying to handle all the calls that are coming in. It’s really, really challenging, and it’s been a bit stressful at times to keep everybody happy, right? Keep all these tenants who are looking for property happy and understanding that “Hey, we can only take one of you guys. We’ve got 20 applications, how can we do this?”
Megan: The answer: use technology to help staff perform their jobs.
Bob Preston: Technologies that were implemented reluctantly pre-pandemic, and some of the owners were reluctant, but that we went all in on during the pandemic such as self-showings, right? It’s one of the paradigm shifts, I think in this industry that has really caught hold and getting owners to understand that “Okay, no one’s going to do damage to your property if they’re allowed to enter on their own and take a look. And, oh, by the way, there are some huge advantages. First of all, they, the prospective tenant stays safe. We stay safe, we rent your property faster” …
Bob Preston: And to be eligible for that, you would’ve had to have, pre-qualified answered some screening questions on, are you going to be able to meet the demands for this rental if we lease it to you? And you also have to show your identification, things like that … That’s been a game changer. And some of those types of things have worked so well that, now even post-pandemic, we’re not going back, right? And they really benefit us in this time of high demand, because if you get a quick response to a new rental that’s gone on the market and they can immediately go and self-show, then it avoids that delay of time in trying to coordinate with a leasing agent.
Bob Preston: Some of the other technologies are the touchless leasing process, right? And AppFolio has been great in helping us do this. We have all of our lease templates built into the AppFolio platform, so that once we qualify a tenant and approve them for their tenancy, all their application information can immediately be inserted right automatically into the lease. They can be sent the lease agreement and not have to show up here at the office with a pen to sign their lease agreement. And touchless move-ins as well. So going to the property, having the same lockbox there so they can move themselves in. And in the meantime, we would have gone and done the inspection. So there were a lot of things to improve efficiency that were forced upon us during the pandemic that we’ll probably continue to keep in place and won’t be… We’ll never be going back.
Brittany: When we’ve talked to other SFR property management businesses, they really have said the same thing you have said, like it’s a growing industry. It’s very stable. And then also now with COVID, people are moving out of big cities and the resident migration, they’re more in demand now.
Megan: Here is Brittany Benz, a senior writer at AppFolio, chatting with Brad Larsen.
Brittany: So have you noticed that in San Antonio that you have an increased demand just in the last year for single-family rental homes?
Brad Larsen: People would tease me because I would give you the northern, I grew up in Iowa answer of, “Oh yah.” Like, “Oh yah.” You know you got to say it with the explanation like you are from the north part of the world. But the short answer is for sure, because of two different things, the sales side has been just absolutely off the chart, white-hot, and the challenge is we lose homes, but we’re gaining them to sales. And the other challenge is all of our rental properties are gone within days. And so just this last summer, at one point we had zero available properties. And what that means is the year prior, the same point the year prior, we had roughly 45 available properties at this same timeframe. And we didn’t grow, we stayed the same year to year just because of the sell-off.
Brad Larsen: But I looked at that and then I’m like, oh my God, I’ve never seen that in years and years that we had like zero homes on the market because they were all pending. All the rollovers that we had, all the new owners that we had were gone in a day and we had nothing on the market. It was a crazy time. I’ve never seen it before. So I’m giving you the long answer of, yes, it’s been a crazy, great rental market because of the drive for people to move out of the cities and/or into the region of Texas.
Megan: As we’ve now seen, the pandemic was a major driver of the widespread adoption of tech, including within property management. One major way this played out was allowing leasing teams to operate remotely, making the most out of virtual leasing tools and technology such as virtual showings and lockboxes. But besides the pandemic, Brad also points to another factor driving the popularity of self-service tools for renters:
Brad Larsen: A lot of it’s been driven by ironically short-term rentals. We’re talking about single-family rentals, we’re talking about multi-family, but let’s not forget short-term because that’s the customer experience that people come to expect. So if you go rent any sort of short-term rental, Airbnb, VRBO, whatever ones I’m missing, well, you don’t show up to some office and sign a form with a dirty blue pen. You go straight up to the door of that rental property that you’re renting for two nights. They give you a code and you get in. Okay. So we’ve adopted a technique that they’ve been using for years and years. So it’s almost laughable when you hear a property manager still wanting to show up and they want to do a lease agreement in person. And it’s like, come on, you got to get to the new times.
Brad Larsen: If Brittany, you or me, we go rent a property, whether it’s for two days or two years, I don’t really need to sit down. I don’t really need you to put a written lease agreement in front of me. I want to see everything electronically. I want to do everything remotely. I want to access the property whenever I need to get in there. And I don’t want to spend a lot of time signing a lease agreement where I have to drive 45 minutes across town to do it. I’d rather just do it and come from my own home and sign it electronically and be done. And that’s what the service that we’ve adopted for both of our owners and tenants. And it’s worked out very well. And I think that’s the trend that we’re going to see continue on more and more.
Megan: This brings us to another trend we’re seeing in the SFR market – a jump in investor interest. Here’s Scott.
Scott Abernathy: I was listening to Bigger Pockets podcast just this morning and I thought they made a great point. They were talking about Blackstone. Blackstone was one of the first one of these Wall Street-type companies to come to town and start buying properties.
Scott Abernathy: All of us old time real estate investors were looking up at them and saying, “This is never going to work. They are paying way too much for these properties.” You know, I can’t imagine I ever thought that I was smarter than these MBAs that graduate from Harvard, because they were right and I was wrong.
They had the long vision, not the short vision … I think Wall Street, as long as they can make money in this game, they’re going to be here to stay. Only thing I can see to change that would be interest rates. If interest rates started to come back up to where, especially your retirees, could actually earn a living wage off of their investments in bonds or CDs or money markets, then that might change a little bit. You won’t see as many people investing in hedge funds. But as long as there’s no real better option, yeah. They’re here to stay.
Megan: Alright, so let’s recap. Each and every SFR property is unique, so property management companies who oversee these homes don’t enjoy the same economy of scale that comes with managing an apartment building, for example. That means budgeting more time and energy is needed to fill vacancies, or perform even basic maintenance for properties that may be far away from one another. And the same goes for interactions with owners. Because single family residences are likely to be owned by private individuals, owners need a different kind of support from their property managers, which can vary widely from owner to owner.
And since SFR properties are so in demand right now, one other thing many have been seeing is a greater influx of lease applications. Using digital leasing technology to manage this influx helps companies track demand and provide better service for interested renters.
Megan: Welcome to part two of our SFR episode. During this second half of the episode we’re asking: how are companies with single family rental portfolios preparing for the future?
Bob Preston: Well, I think sometimes when you get into a certain method of doing things, whether you want to call it a rhythm or a way of doing things, you have to remember to see the forest through the trees, right?
Megan: Bob Preston.
Bob Preston: And we’re coming out of a very unusual time where we’re trying to automate as much as possible, be as efficient as possible, do things as safely as possible. And there’s a tendency to just continue to do things the way you’ve always done them, right? And what we’re noticing is that as people … people are starting to reevaluate a lot of things, including owners evaluating what they’re going to do with their properties. And because of that, we think that there’s going to be a surge in demand for Customer Service Level, right? They have options, right? They can … the sell market is also very hot right now.
Bob Preston: They can sell their property, they could take it back and move into the property, they could find another property manager. They could say “Hey, this seems easy. I’m going to manage it myself.” And I think we have a lot of owners who are evaluating all those things. So it’s on us to make sure that they stay happy, that we communicate with them and that we really show that extra level of customer service and that’s important to this company …
Bob Preston: I talk to a lot of property management companies and a lot of property managers. And there are those who are still operating with sticky notes and Excel spreadsheets and notepads, right? … If you’ve not embraced the change of becoming more efficient, there’s this huge paradigm shift that’s underway, right? …
Bob Preston: So you can’t implement everything, but you have to understand what will bring your company the most value when implemented. So if it helps you get from – first point of customer contact with a new owner – to the point where you’ve leased a property and you’re collecting property management fees. If it gets you from that point A to point B faster, and more efficiently, then that’s something where you’ll get my attention … But I think that’s the most important thing to understand is that, look there definitely has been a paradigm shift in this industry. There are a lot of vendors with solutions coming into it and offering things and prioritizing those, understanding which vendors you want to work with, which ones are the priority, that’s really the key. And picking them wisely to make your company as efficient as possible without burdening your staff with too much change at one time.
Megan: Scott too spoke to the urgency for companies to adopt technology to take advantage of high renter demand within the SFR market. Here he is speaking with Matthew Kaddatz, a senior product director at AppFolio.
Matthew Kaddatz: So you also mentioned maintenance. I’d love to dig into that for a couple minutes. How has maintenance technology really helped your operation be more efficient, profitable, easier? What’s new on the market and where do you see that going?
Scott Abernathy: I think it’s more the automation. The automation that comes with the software programs that are out there now. In our software that we use for maintenance, when a maintenance request comes in through that software, it is a push of a button on my phone to assign it to a contractor. That contractor can take it or not. I can reassign it or whatever. It’s just so simple. There’s a few caveats there. The biggest one is the contractor. The contractor has to adopt it as well. They have to understand the technology also. And those contractors that do so love it. I mean they are just exhilarated with it. All of the communication stays within the app, with the tenant and the contractor. The property manager can see all those communications as well. Can see that the request has been answered, that there’s been an appointment scheduled, whatever the case may be.
Scott Abernathy: Also what I really love about it is it gets feedback for us also. As soon as the software closes down that work order, it sends out a request to get feedback. Hey, how’d you like it? Was the job done? This, that, and the other. So we can also tell whether the job is done. Now the challenge comes from, okay I live in the middle of Tennessee. We’re not a real technology driven community here. It’s not like southern California or something like that. So a lot of our contractors are what I call Bubba and a truck. It’s really hard to get Bubba and a truck to adapt this kind of technology. That’s the challenge I’m having. Once again, I think as this becomes more prolific and normal, we’ll see this being a fantastic software revolution for us as well.
Megan: Technology is only one part of the SFR management equation – human relationships are central when managing any type of real estate portfolio, but perhaps especially so when it comes to single family.
Scott Abernathy: I’ve built my business by networking. When I say networking, I am pressing the flesh and kissing babies, you know what I mean? I’ve been in person, speaking presentations, chamber of commerce events, the rotary or local REAs, realtor’s association, NARPM, whatever the case may be, I’ve always built my business that way.
Well Covid changed all that and I had to learn another way to network. I will readily admit, at first I said, “Okay, I’m just going to wait until this is over.” And I realized this wasn’t going to be over anytime soon. So I really adopted things like this technology here that we’re on right now. Or even Zoom or Teams or whatever it is that you use. I invested in it in my office. I’m staring at a camera that’s mounted to the wall with an audio system as well, because I knew this wasn’t going anywhere. This was here to stay.
Scott Abernathy: I’ve learned from other NARPM members a handful of things to keep yourself connected to your clients. One of which, and I’ve got to give Brian Jenkins credit for this, Brian Jenkins is our southeast regional vice president. He does a monthly or maybe it’s bimonthly Zoom call with all of his clients. It’s kind of like a happy hour. He’s on there and he’s got many offices by the way. He’s on there for any of his clients that want to come on to just have a chat. To stay and to know him. He couldn’t do that without this kind of technology. So yeah, so I think technology absolutely can work to keep you connected.
Scott Abernathy: With all that being said, it’s still never going to be as good as being in person. As shaking somebody’s hand, say hi to them, look them in the eye, give them your full attention, and have a conversation with somebody. That’s my opinion for what it’s worth. And again, I might be that old guy that has the green ledger too.
Megan: But of course, technology can actually make it possible to maintain those important relationships through better communication with owners and renters, too. Here’s Brad.
Brad Larsen: Texting is a great tool that we use with them, and it goes back into the system. We also can send letters out through the system, so that’s always going to be put on record. In addition to the owner’s portal. I mean, all those things right there, not to mention the electronic payments, electronic statements, all those things are great tools that we use with all the owners. And anymore, it’s like, if you’re not doing that stuff, what are you doing? We get baffled. Sometimes you hear about that our last property manager just used to send me a check. I’m like, “What? Checks, who does checks any longer?” And then you hear other, “Well, the property manager I used to work with, they’d let me come in and pay rent in person.”
Brad Larsen: We’re like, “What? No way. You’re not paying rent in person, pal. You need to get on the portal.” That’s another thing that came out of the COVID is we saw less and less tenants wanting to pay us directly in person. So the walk-ins, here’s a cashier’s check, there were fewer and fewer of those. And if you’re wanting to push people into the electronic method, you can either incentivize them to do that or decentivize them to not pay in person. And so we also have like a computer module off to the side in our front office. So if the tenant walks in and says, “I want to pay in person.” We ask them, “Hey, have you heard about electronic payments and how it all works?” “No, I don’t know how to set it up.” “Well sit your butt down right here at this computer. We’re going to walk you through it right now.”
Brad Larsen: And so my staff will walk them through that right then and there in person at a computer terminal in our office. And so we’ve adopted some issues of, again, coming out of COVID. I thought we were ahead of the game before it, so when it hit it, wasn’t like, oh my god, how do we do an electronic payment? But back to your question with the owners and the online tools, all of those, again, have been invaluable just to be able to keep our owners in the loop. You have tax reporting time, you have 1099s we got to fly around. Those can be posted to the portal. They can ask questions via chat, via text. I mean, it’s just really a good system that we use. And it’s so good to a certain point that you forget it’s there, right? It just seems to be the norm.
Megan: If it wasn’t already crystal clear to you, one thing is for certain: managing a growing SFR portfolio is not for the faint of heart. Satisfying the needs of many different owners, each with their own preferences and perspectives, requires a smart communication strategy and scalable tools and technology to meet their needs. Taking care of a large number of properties, each with their own quirks and unique maintenance needs means staying on top of incoming maintenance requests and leaning on technology to dispatch vendors and resolve issues quickly, across what can be a significant distance. And to satisfy renters accustomed to the on-demand service provided by apps like Uber or Airbnb, SFR operators are increasingly adopting new technology that makes that possible. All of these changes help to better serve the people at the heart of the single family rental market.
Special thanks to our guests, Scott Abernathy, Brad Larsen and Bob Preston, as well as AppFolio’s Senior Product Director Matthew Kaddatz and Senior Writer Brittany Benz, for hosting interviews. And thank you for joining us on The Top Floor. We’ll see you next month with a new episode.
Sean: Thanks for listening to The Top Floor. Join us here every other week for a new episode. For more information about today’s guests, visit us online at appfolio.com/blog. For more property management insights, follow Appfolio on LinkedIn, Twitter, and Facebook. Don’t forget to subscribe to The Top Floor on Spotify, Apple Podcasts, Stitcher, or wherever you listen.