The dominant real estate storyline of the 2020s thus far? It’s very likely the quick ascendence of the Single-Family Rental (SFR) and Build-To-Rent (BTR) residential sectors.
Companies in both sectors have common goals. Both want to connect their existing inventory with interested renters. Both want sharper investment processes aimed at helping them grow their existing portfolios. Both require new and updated technology solutions to manage their existing portfolio of properties. Both seek to leverage data and reporting solutions to spark growth and achieve a competitive advantage.
Let’s dive deeper into the SFR and BTR sectors and examine how technology and data-focused deliverables will help these companies improve their investment strategy, optimize property onboarding and management, and gain a competitive advantage.
What’s fueling the growth of SFR and BTR?
SFR isn’t new—larger companies like American Homes 4 Rent and Invitation Homes have been around for a while—but the market for rental homes has exploded in recent years due to a variety of factors.
One, more younger Americans and Britons are opting to rent their homes instead of purchase them, at least compared to prior generations. This is in large part due to lack of available capital and/or the desire for a more flexible living situation.
Two, the COVID-19 pandemic tightened an already hot housing market by depleting the inventory of existing homes, slowing the pace of new SFH construction starts, and revving the recovery economy to such an extent that both home prices and inflation are exceeding historical norms.
Whereas SFR isn’t new, just suddenly ascendant—BTR is a novel asset class that has become a darling for investors both in traditional real estate and the private equity sector.
In BTR environments, real estate investors and management companies are partnering with developers and builders to create communities of rental homes, all sharing amenities that one would traditionally expect to find in large multi-family developments – fitness centers, pools, coffee shops, and more.
There’s hardly a growing city in the United States or the United Kingdom that isn’t seeing growth in SFR and BTR.
In the U.K., a recent Brookings study found that home ownership has slipped from roughly 71 percent to 63 percent over the past decade, while over the same time period the private rental market has nearly doubled. Leading the growth in the rental sector during that time are the U.K.’s three largest cities: London, Manchester, and Birmingham.
In the U.S., the Sun Belt region is seeing the largest growth in SFR and BTR. According to HomeUnion’s list of the top 10 SFR markets in the U.S., six are in the Southeast: Charlotte, Orlando, Jacksonville, Fla., Birmingham, Ala., Tampa, and Nashville.
Needs and resources for SFR, BTR investors and property managers
Companies with both BTR and SFR inventory are looking for data management, reporting, and analytics solutions aimed at optimizing both investment strategies and property management processes.
“When you think about SFR and BTR, there are specific needs unique to both investors and property managers,” said Breanna Guntert, Director of the Real Estate Practice at Saxony Partners. “On the BTR investment side, companies are raising capital to buy up land and communities. You have real estate management companies partnering with developers to develop these all-inclusive BTR communities with amenities that are similar to what you’d see in a large apartment development.
“And on the SFR investment side, companies are looking to acquire both properties and smaller companies to increase the number of homes in their portfolios.”
Investors need to be reasonably certain that the asset they are planning to acquire is valued correctly. This is true whether the asset is a home, a portfolio of homes, or another company. This pre-acquisition stage is known as due diligence, and it’s where existing and future technology needs related to the asset are assessed and any hidden costs or trap doors are (hopefully) revealed.
Once an asset has been acquired, companies typically need help with property onboarding and client onboarding, particularly when a large portfolio of homes or another company is being acquired. Existing technology and data from different systems must be integrated into one, and all of that data must be accessible and reportable.
SFR, BTR, and Yardi: Property Onboarding and Managed Services
Typically, both BTR and SFR companies use Yardi—the ubiquitous real estate property management software platform—to facilitate property management.
“If you don’t have Yardi as your source system to start, then you are already at a tremendous disadvantage,” said Derek Thornhill, Vice President of Saxony Partners’ Real Estate practice. “And even if you are already leveraging Yardi as your system of record, you’ll probably still have some needs around optimizing modules and reporting.”
Yardi developed a Single-Family Home Module for Voyager in 2013, and any SFR or BTR company using Yardi must use that module to manage their properties. Other modules including RentCafe, PAYScan, Fixed Assets, and more are also leveraged by companies serving the BTR and SFR markets.
Many real estate firms enlist Independent Yardi Consultants for help with property onboarding, modules, upgrades, reporting, training, and other Yardi managed services.
Closing the tech gap and leveling the playing field
Right now (and, it seems, for the foreseeable future), competition between companies within the SFR and BTR space is fierce and getting fiercer.
“At the moment, you have the big companies, and you have everyone else,” Thornhill said. “The bigger players are leveraging technology and reporting to their advantage, and they are sucking up most of the available capital as a result.”
Investing in technology and data solutions, ensuring a smooth due diligence process, and streamlining property onboarding is the quickest way to close the gap for nascent and smaller SFR and BTR players.
“If you’re a company that’s just getting established in this space, then you’re going to have to decide whether to make the investment in technology and operations in order to compete,” Thornhill said. “Even if you’re an acquisition target, you’re going to have to have certain technology and reporting tools in place. If not, you’ll be discounted really quickly.”
Technology is also the key to accomplishing the biggest goal of all in BTR and SFR.
“Every company, regardless of their size, is laser-focused on matching their inventory with people who want to rent,” Thornhill said. “Connecting those two dots as quickly and as seamlessly as possible is the single biggest goal in the industry.”
Matt Hooper is the Vice President of Marketing and Communications at Saxony Partners, a Dallas-based management and digital consulting firm serving commercial real estate and financial services clients. A former newspaper reporter, Matt (and his team) posts thought leadership regularly on the blog at SaxonyPartners.com.