The rental market is hot, so now’s the time to wade in.
5 min read
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As of this article’s writing, there are more than 23 million landlords in the U.S., according to Rental Protection Agency’s real-time Rental Clock. But that number means very little on its own. How much opportunity is there for those landlords? Well, according to the same Rental Clock, there are currently a whopping 113 million-plus renters in this country as well. Equally surprising is that — per the same source — 2,654 new renters enter the market every single day, while only 544 new landlords do the same. That’s a big, exploitable gap for real estate-investing entrepreneurs.
But not everyone has hundreds of thousands of dollars to buy real estate and rent it out. The good news is, you don’t have to. There’s another way to take advantage of that massive supply-and-demand chasm: property management. Most real estate investors who own more than a few properties will hire a management company to help them with the dirty work. And as more landlords and vacation rental owners (like Airbnb and VRBO) crowd themselves into the market, opportunity for real estate-management companies will only increase.
Here are four good reasons why property management businesses are thriving in today’s market, will continue to do so in the future and why you might want to jump on the bandwagon before it’s too late.
1. Rent-asking prices keep going up, up, up.
According to data collected by the United States Census Bureau, rent prices have been steadily increasing since the 1990s without any significant fluctuations. Even during the recession at the end of 2007, rental asking prices continued to increase steadily.
For-sale prices, on the other hand, fluctuate dramatically depending upon the health of local- and nation-wide housing markets. During the recession, for-sale asking prices saw a drop of almost $50,000.
For real estate investors, rentals are far less risky than fixed-and-flipped properties, and they provide the passive income that many real estate investors crave. As new and old real estate investors scramble to leverage the statistical safety of a buy-and-hold strategy, property management companies will benefit.
2. Nearly a third of occupied houses are rentals.
The Census Bureau also reports that 31.5 percent of occupied houses are rentals. And while owner-occupied houses account for 56 percent, that gap is getting smaller and smaller. In fact, rental vacancy rates have been decreasing steadily since 2009, according to the Federal Reserve Bank of St Louis. Conversely, homeownership rates were at a 50-year low in 2017 and have made a relatively insignificant recovery from 2004’s peak, as Advisor Perspectives reports.
What does this mean for real estate investors and property management companies? Well, as people continue to opt for rentals over homeownership, the demand for rental properties will increase and, as investors fill that gap, so too will the demand for property management companies.
3. Technology makes property management easier than ever before.
As property management businesses flood the market with lucrative success, savvy tech entrepreneurs have followed suit. Because the truth is, there’s a glaring problem with building a property management company. Namely, that it’s a highly demanding, boots-on-the-ground, 24-7 sort of business model. If the A/C stops running in the middle of summer, if there’s a sudden water leak in the kitchen, if the pipes freeze and burst, if anything sudden and unexpected happens, it almost always falls to the property management company to do something about it (that’s why the real estate investor hired you in the first place, isn’t it?). This means the property management company needs to have dependable people near each managed location, a quick way to communicate with tenants, employees and local handy-men, and a system for organizing everything behind the scenes.
Tools like Guesty (a property management platform for short-term rentals) and Buildium (for long-term rentals) are attempting to solve this conundrum by enabling property managers to automate tasks, streamline communications with guests and homeowners, schedule cleanings and organize portfolios, all from the comfort of their living-room couch.
4. Vacation rentals are outpacing the hotel industry.
Three years ago, VRMB predicted that vacation rentals would topple the hotel industry by 2020. Now, it’s 2019 and there are plenty of hotels in every city around the nation. Though while VRMB was probably overly zealous with their estimation, they weren’t entirely misguided. In fact, Airbnb is now the second-largest lodging company in the world, only 100,000 units behind Marriott International, according to Str. It’s also acquired 150 million users, with two million people staying in an Airbnb every single night. And more and more people who stay in an Airbnb don’t ever want to go back to hotels. Needless to say, business is booming.
It’s hard to say whether vacation rentals will completely obliterate the hotel industry (even most taxi companies have survived ride-sharing apps), but one thing’s for sure: Vacation rentals are a force to be reckoned with. And while hotels don’t need property managers to do their dirty work, vacation rental investors often do, opening up another page of opportunity for entrepreneurs brave enough to build a property management business of their own.
Author: AJ Agrawal