“The goal of all professional property managers is to keep the tenant in their home.” The speaker could be a property manager working for a major northwestern real estate management firm, or the department lead of a multistate ownership/management shop, either one discussing the challenges of rental issues during the pandemic.
But Cathy Robertson, ARM®, is vice president of T.E. Johnson & Sons, a Winston-Salem management firm specializing in single-family homes. Often flying under the radar of property management discussions, single-family home rentals have remained undeniably hot throughout the 2020 crisis.
As GlobeSt.com reported recently: “In the third quarter of 2020, single-family rentals had an average 95.3% occupancy rating, a 100-basis point increase from the first quarter of the year. This is the highest occupancy rate since 1994 for single-family rentals.” It goes on to forecast a potential shortage in inventory, even as more investors and developers take note of the sector.
Robertson, whose portfolio encompasses some 800 single-family units throughout North Carolina, has noticed both trends. “We saw a huge surge in renters seeking single-family housing,” she says. “In March of last year--the first full month of the pandemic--we had more than 6,000 phone calls in less than 30 days. But there was a huge lack of inventory. We didn’t have homes available for people who were seeking them.”
This was due in large part to the eviction moratorium, an issue she shares with her multifamily IREM colleagues. “So, the normal turnover you would see in a year wasn’t there.”
She’s also noticing more interest from a different breed of investors. The bulk of her ownership clientele is what she describes as mom-and-pops, individuals or families who have inherited the properties or bought them as a retirement income source. Now deep-pocketed investor groups are arriving on the scene with buy/hold/sell strategies.
“They’ll hold for as long as 10 years, perform renovations as needed and then sell them,” she explains, adding that two of her investors are based in the UK, one of whom has already amassed a portfolio of more than 25 properties.
Robertson, who comes from a multifamily background (there are still a handful of duplexes and small multifamily units in her portfolio), says that the legacy mom-and-pops she works for--some 600 in all--bring their own set of challenges to the space. “I come from budget planning,” she says. “But most of our properties don’t work to a budget, which kind of makes sense when you have one owner who has just three houses.”
Another major point of differentiation is that there’s “no one-size fits-all solution to an issue,” she says. “No two units are the same. You can’t just order 50 gallons of agreeable gray.”
Both of these issues demand serious conversations with owners before signatures appear on agreements. “Before we onboard a new property, we discuss budgeting and the percentage of income they need to hold back for future repairs and maintenance. We discuss the age of the HVAC and other systems. We talk about the plan.”
But, in yet another twist, rarely is a budget documented. The individuals who own one or two income assets generally prefer to keep that information confidential. “So, we give them the tools they need to put together a proper budget,” she says, “but we rarely make a mortgage payment for a landlord, and we’re contractually protected from mistakes they might make.”
If an owner can’t come up with the funds for certain repairs or upgrades--a common upshot of the pandemic-induced economic slump--“we have resources that can help them with financing options.” (Robertson explains that rentals run from $725 to a high of $2500 for a home built in the past two years.)
Ongoing monthly communications with owners remind them of such deadlines as the coming ban on Freon by the Environmental Protection Agency. “We’ll remind them that they need to be budgeted for the change-out in HVAC systems,” she says. Such advice is good, not just for the owner, “but we have the tenants to consider as well.”
Budgeting for individual operators is, of course, different from budgeting for even a mid-sized multifamily owner. “They don’t have 20 properties,” Robertson says. “One of our owners is an elderly widow. She has two properties, neither of which collect more than $800 a month.” And two tenants signed deferral forms with the CDC, rent she relied on for her monthly prescriptions. “It was tough to explain to her why we couldn’t do anything to get her tenants to pay. Assistance programs that don't make the tenant 100 percent whole will leave them vulnerable. And any assistance that doesn't make the tenant whole doesn’t make the owner whole.”
And therein lies yet one more similarity between Robertson and her real estate management colleagues. She believes that a greater focus on single family—such as the recent feature on the sector in the Journal of Property Management--will open a new avenue of interest for the real estate industry.
This is especially true now as vaccines continue to roll out and more smaller investors cash out of the business in favor of those deeper-pocketed players. In addition, new inventory is expected to come online as developers follow the money.
By this time next year, Robertson predicts, “We should be in a very good position.”