This feature originally appeared in the March issue of MReport.
To give you a sense of how big the single-family rental (SFR) housing market is in 2020, it currently makes up 63% of the rental housing stock. Since 2006, more than seven million single-family rentals have been added to the market, compared to the three million properties with 10 units or more. In terms of opportunity for entrepreneurs, 99% of the SFR market is dominated by noninstitutional investors, according to a November 2016 white paper by Amherst Capital.
One reason the SFR market is booming today is because of our country’s ongoing student loan crisis. A study by Apartment List surveyed 6,400 Millennial renters across the nation, and even though nearly 50% of them said they wanted to buy a home, they reported having almost no savings for the necessary down payment. According to a CNBC report, “Student loan debt in the U.S. has increased by 170% over the past decade,” with almost 20% of Millennials needing financial assistance to even consider homeownership.
As a result, the majority of the next generation of “homeowners” aren’t actually looking to own. They’re looking to rent. With so much opportunity to service this new class of renters who want to move out of apartment complexes and into single-family homes, I want you to think about real estate as an entrepreneur. I want you to consider the ways you can build an SFR business that keeps tenants happier, staying longer and devoted to living in properties you own—because you give them the best customer service.
Here are four entrepreneurial strategies you can use to get started.
- Put Yourself in the Shoes of the Customer
There are two types of people who get into real estate. There are those who see real estate as a great way to diversify their capital, and look for deals that involve little else besides writing a check. Sometimes, this means putting capital into real estate exchangetraded funds (ETFs) or real estate investment trusts (REITs). Other times, investors will pool their money together to buy a complex with 16 units (or, if they have the means, buy the building outright themselves).
And then there are the entrepreneurs. Before I started my current company, LendingOne, I built Wilmar, one of the largest distributors of plumbing, hardware, electrical, and maintenance products to the multi-family housing industry. I created a multi-end market holding company, Interline Brands, to add to Wilmar’s end-market opportunities. Interline Brands is now owned by Home Depot. Like most entrepreneurs, I took what I had learned building Interline and applied it to all of my future businesses.
One of those businesses was Crestar Homes, acquiring and renting homes that I primarily acquired through tax lien auctions. It was a real estate business—but unlike most real estate investors, I was extremely hands on. Running a single-family rental business should be viewed like any other business. Your renters are your customers, and your customers deserve special attention. To you, this might just be a property in your real estate portfolio, but to the customer, this is their home—so, make them feel like it. Put yourself in their shoes.
What would you want waiting for you when you first walked into the house? What sort of appliances should the kitchen have so they feel proud to have people over for dinner? Instead of just having the renter pick up their keys from the office, why not prepare a welcome package for them, including materials on great nearby restaurants, a number to call for on-demand maintenance, and other little things like that. These small gestures made a difference. It helps tenants feel less like they are moving into a temporary place. Instead, they feel like they are right at home.
2. Provide Better Service and Tenants Will Want to Stay Longer
One of the biggest challenges in the SFR business is how long it takes to rent a property. Your property economics could look great on paper, but if your vacancy rate is too high, it’s impossible to be profitable. For professionally run properties, 30-60 days to rent a home is about standard. But for entrepreneurs who own a property or two and are just getting started, it can take twice as long. In any other type of business, the solution here would seem obvious. It’s a retention issue, so your job as the entrepreneur is to fix retention.
In the real estate business, most investors don’t think this way—or rather, they understand the problem, but they can’t come up with any actionable way to solve it. Again, put yourself in the customer’s shoes. What are the things that would make someone fall in love with living somewhere? Convenience is always at the top of that list.
If, every time they have a repair request, it takes you a week to get back to them, they aren’t going to like being your tenant very much. Or, if you aren’t proactively improving the property and increasing the value they’re getting, they’re going to feel like you don’t care about the place—which they may assume means you don’t care about them. These are the same judgments people make when assessing whether or not they want to continue living in a 16- or 32- or 64-unit apartment building. Why treat the customer differently just because they’re living in a home?
3. Continue to Add Value
Little tweaks and renovations can go a long way. When I was running Crestar Homes, we used to always look for ways to make our properties look more modern and appealing. Especially when it comes to SFRs, your customers aren’t looking for a college apartment—they’re looking for somewhere they can settle down, even if it’s only for two to five years. When they are comparing your properties to other options in the market, they are paying attention to every little detail.
• How new are the appliances?
• Are the walls pure white or light beige? • Where are the outlets in the living room?
• Does this place have carpet or is it all hardwood flooring?
As an entrepreneur, it’s your job to stay on top of what people are looking for, and then make adjustments as needed to increase the value of your property. For example, we found that people didn’t like pure white walls; they much preferred off-white or beige. We also saw that kitchens without tiling around the cooking area required significantly more cleaning, so installing tile on the walls behind the stove and sink was a minimal investment that made the kitchen feel much more elegant. These small efforts were costeffective but made a world of difference in terms of attracting and keeping tenants.
4. Building Relationships With Your Tennants
Whether you are an aspiring real estate entrepreneur or you are looking to scale your existing business, you should always be thinking about how you can build better relationships with your customers. How often do you check in with them to see if they need anything? How do you (or how does your company) interact with them via calls and emails? Are you friendly? Do you find little ways to go above and beyond if they let you know the dishwasher is broken or the toilet won’t flush? When a customer starts thinking about moving, all these little moments are going to flood into their mind. If they can recall positive, warm experiences, they are much more likely to stay. But if they have a laundry list of all the times you let them down, you better believe they are going to start looking at your competitors. Some of the ways you can show tenants you care are:
• Make a positive first impression as soon as they move in
• Communicate openly about repairs or minor inconveniences that may impact their day-to-day living
• Make cost-effective upgrades to ensure the home continues to feel “like new”
• Resolve complaints quickly and effectively • Get regular feedback from tenants on ways the property can be improved
You don’t need to reinvent the wheel in order to be a successful real estate entrepreneur. In all of my businesses, I never invented anything. I just took existing businesses and executed better than the competition. In real estate, most people rarely think about customer service. They just think about how to acquire a property for the cheapest cost and how to charge the highest rent—when in reality, if customer service is a core principle of your business, that’s what is ultimately going to differentiate you from the competition. The customer has to come first. And the more you can make them feel at home, the longer they’ll stay.