Managing single family rentals challenges investors

By Steve Cook, Real Estate Economy Watch  |  June 14, 2012 at 11:07 AM
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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. As single family rentals have exploded around the country, so have property management firms who serve the single family market. As much as 20 percent of the nation’s 21 million single family rental units use professional property management firms, which typically charge ten percent of rental income. Yet the fee must he worth it because the SFR management business is zooming for Salt Lake City-based Real Property Management. RPM has expanded to 200 franchisees in 44 states in the past three years as SFR management has grown to 70 percent of its business. Single family rentals, and the need for property management services to take care of them, are growing fastest in market with the most foreclosures. One of the most important motivators for landlords to get professional help is helping to manage tenant turnover. Losing a month or more of rent can wipe out a year’s profitability. Christensen points out that SFR tenants are a different demographic that apartment dwellers. They older, more likely to be couples or families, they have higher incomes than multi-family tenants and they tend to stay longer. “With the single family rentals available today, a family doesn’t need to tie itself down to a home. With the difficulties many people are having getting mortgages today, the single family lifestyle is a great option that barely existed a few years ago,” said Christensen. RPM also serves banks and mortgage servicers who want to rent out foreclosures. It’s a small part of their business and many are watching Bank of America’s pilot program to rent out its foreclosures, taking them off the REO market and earning some income.

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