DS News

» VISIT US ONLINE @ DSNEWS.COM 69 COVER STORY INDUSTRY INSIGHT INDUSTRY INSIGHT investors in the past couldn't easily do ‒‒ find properties in areas where they don't live. Beasley and Roofstock, in fact, are trading on this reality. Traditionally, he says, SFR investors have been limited by their location; that they tend to live near where their properties are because they've needed to be able to get to them and see their condition in person. But technology ‒‒ or, rather, the democratization of information available online ‒‒ has changed things big time. Investors are now able to see the condition of properties, read reports, and find out whatever they need to make an informed decision. e days of buying sight-unseen, therefore, have morphed into highly informed decisions that small investors can see just as easily as a consortium of real estate investors on Wall Street. From a purely investment-centered perspective, this is incredibly similar to building a portfolio of stocks and bonds. Charnoff, who worked as a financial advisor before founding Investability in 2014, says, the diversification of investments is a basic to building wealth, and diversifying your geography when it comes to real estate holdings is no different than diversifying the companies in which you buy shares. At its simplest, Charnoff says, owning properties in different cities lessens your risk. If you own all your properties in Dallas and Dallas suddenly falls off, your investments will all go with them. But own in four cities and have trouble in two, well, you still have two good performers. While Charnoff would never advise anyone to replace securities with an all-realty portfolio (despite how badly the stock market mauled many investors when the recession kicked in), he says SFR investment is a smart addition, and one that will stay mainly in the mom-and-pop sphere. "Under 100 is the meat of the market today," he says, referring to the number of properties most investors own at once. "And it's been grossly underserved and fragmented. Nobody chased mom and pop until Wall Street stepped in, but 98 percent of the market is still less than 50 [properties]." Sanchez doesn't see mom and pop going away, but does see larger institutional investors stepping in to scoop up properties mom and pop are going to sell. Gone, at least for now, she says, is mass-inventory ownership like banks had when they inherited so many default properties a few years ago. Keep in mind, however, that banks found a way to make money out of their sudden windfall of underwater homes, and those lessons will not be forgotten. Now that it's been shown that there's money to be made in the buy-and-rent market, expect there to be increased competition for properties. Accordingly, Sanchez sees the SFR market developing in a more build-to-rent direction. Without the glut of existing inventory, those looking to invest long-term in the SFR arena, will, she says, begin building more homes for the purpose of renting. e advantage here is that for the first few years new construction typically has fewer maintenance problems than existing properties. at said, smart investors will go in knowing that maintenance issues absolutely will show up and must budget accordingly. So for the investor services arm of SFR, the opportunities lie in helping buyers create a diverse portfolio. For property preservation and maintenance companies, opportunities lie in broadening services as the market switches from buy-and-flip to buy-and-hold. And for brokerages and those who place buyers and sellers together at inventory, opportunities lie in technology that allows transactions to happen anywhere, anytime. But let us not forget property management, which would be easy to do because there is no one national player in property management when it comes to SFR. Ortner, of course, would like to change that in Renters Warehouse's favor. And as he sees it, for property management enterprises, the opportunities lie in education. ink back to the fact that SFR's largest pox is that of stigma. People think renting is a poor man's version of ownership, and they've been bludgeoned with the message that the American Dream is and always will be owning your own home. Try changing that perception. But Ortner is working to educate everyday people (i.e., the 98 percent) on what he calls 'the rent estate world;" a system whereby owners have a home they rent and buy another property to live in. e advantage as he sees it is, unlike stocks and bonds, people looking to invest in property can walk into a bank and get a mortgage to help them get started. Another avenue for property management is a bit of rebranding. Ortner prefers to call his firm's services "professional landlord" as opposed to property manager, simple because most people associate property managers with mega-rich investors. But property management services are for everyone, including mom and pop, it's just a matter of letting mom and pop know they can tap into a network of maintenance and upkeep workers for their properties, he says. None of this, of course, is meant to imply that being a landlord in the SFR market is easy. Under all this potential, Sanchez says, is the fact that success as an SFR investor revolves around scalability. "is is not an affordable business to be in," she says. Volume plays a huge role in how well an investor does, because without adequate volume, making substantial money will be next to impossible. Conversely, with too much inventory, there are more expenses: taxes, maintenance costs, etc. What will be the deciding factor in long- term success, she says, is the level of service provided by owners and property managers. In other words, long-term success will come mostly to those who realize that this class of residential assets is to a large degree a commercial asset. e myriad professionals, from legal through property management, "have been on the business-to-business side of [SFR]," Rand says. What's coming, though, "is just a massive extension of it." "Today's most active SFR markets are exactly the same ones as yesterday's REO markets: Phoenix, Dallas, Miami, and other metros where REO stock flooded the market."

• Cover