As single-family rentals surge in demand, a new wave of independent landlords emerges, signaling a ripe moment for innovative property management solutions.

The demand for and scarcity of single-family rentals (SFR) makes this property type an attractive investment for residential real estate investors. But many owners/operators are unprepared for the complexities and costs associated with SFR property management lifecycle, a reality that we believe should create unprecedented demand for software solutions capable of streamlining the process.

In this GrowthBit, we’ll talk about what’s happening in the SFR market and why we believe it’s an advantageous time to invest in the fast-growing property management software sector.

The appeal of SFRs is growing fast

The latest figures show that nearly one-third of U.S. residents are renters (32%)1 and a variety of demographic and economic indicators suggest that single-family rentals, in particular, will continue to grow in popularity.

Shifting demographics are also creating demand for rentals, especially SFRs.

Affordability is one factor buoying the rental market, with a widening gap between wage growth and the cost of housing placing home ownership out of reach for many. According to Redfin, just 15.5% of homes for sale in the U.S. were affordable for a typical household in 2023, meaning that the mortgage is equivalent to no more than 30% of the mortgagee’s income.2

Shifting demographics are also creating demand for rentals, especially SFRs. The younger generations—Millennials and Gen Z—are becoming the largest cohort to move into SFRs, with approximately 60% preferring the flexibility and reduced financial risk associated with renting in 2023,3 a preference that has only increased with the shift to remote work.

The rise of the independent landlord

Rising demand for rentals combined with low inventory pushed occupancy rates to a record high of 97.6% in 2022,4 and historical data suggests that the market for SFRs is more recession-resistant than other real estate sectors. Individuals who invest in real estate earn approximately 45% more household income than those who do not.5

The property management lifecycle can be unexpectedly onerous and time-consuming, especially with rapidly changing regulations and tenant protections.

This combination of resilience, accessibility and potential for additional income is creating an influx of individual owners who may have purchased a single-family home as a rental property or decided to rent their old home after moving to a new one.

While institutional landlords account for the majority of the apartment and commercial buildings stock outside of SFR, over 14 million individuals own at least one rental property (according to Pew Research as of 2021), and these properties are predominantly SFRs. In fact, individual owners account for a staggering 90%+ of SFRs on the market.6

A greenfield opportunity for rental property management software

While SFRs are enticing investments for individuals, they require considerable time, knowledge and effort to manage competently. The property management lifecycle, which includes finding tenants, processing paperwork, managing financials and performing or overseeing maintenance, can be unexpectedly onerous and time-consuming, especially when rapidly changing regulations and tenant protections are factored into the equation.

Vendors that can automate and simplify the workflow will find a fast-growing market eager to minimize the complexities of single-family real estate management…

We find owners of SFRs are often juggling property management with a primary, full-time job. Some choose to self-manage in order to help maximize their profits, while others will turn to property management companies to help them manage the workload.  Whether self-managed or professionally managed, the process is often supported by tools no more sophisticated than pens and paper, and perhaps Excel. With the number of independent property managers at 14 million in 2021 and rising fast, the lack of digital tools presents an exciting opportunity for greenfield investment.

Where property-management software exists, it is almost exclusively designed for the management of multifamily or commercial properties, often on behalf of institutional investors. For the growing number of independent landlords and the property management firms that serve them, the market offerings are almost nonexistent.

Software designed for SFR property management has tremendous potential for growth, but the market has unique factors to consider.

Vendors that can automate and simplify the workflow, from ad syndication to application management to credit checks to contracts to ongoing maintenance to tax support, should find a fast-growing market of firms and individuals eager to help minimize the complexities of single-family real estate management, save time and improve margins through greater efficiency.

Success in SFR requires more than a great product

We believe software designed for SFR property management has tremendous potential for growth, but the market has unique factors to consider. Some of the most successful vendors in this space will be those that have invested not only in a user-friendly product but also the strong brand recognition and effective digital marketing strategies needed to reach geographically dispersed, hyper-local markets for individual landlords and small property management companies efficiently. They will also need to demonstrate effective conversion strategies and sticky products capable of converting and retaining customers.

Here’s the bottom line.

A convergence of social, demographic and economic trends has created a new class of SFR landlords and property managers who are motivated to minimize the effort required to manage this type of investment. Vendors whose offerings can streamline the single-family real estate rental process, and who can attract, engage and retain this hard-to-reach segment, have the potential to tap into a greenfield opportunity of over 14 million independent landlords since 2021 (and growing).


Learn more about the LLR team, relevant investment experience and our focus on the Property Management sector.


References
  1. “Renters and Owners,” National Multifamily Housing Council, 2023, https://www.nmhc.org/research-insight/quick-facts-figures/quick-facts-resident-demographics/renters-and-owners/

  2. Lily Katz. “16% of Home Listings Were Affordable for the Typical Household in 2023, Likely the Bottom for Housing Affordability,” Redfin, 2023 https://www.redfin.com/news/share-of-homes-affordable-new-2023/

  3. “Home Buyers and Sellers Generational Trends,” National Association of Realtors, 2024, https://www.nar.realtor/research-and-statistics/research-reports/home-buyer-and-seller-generational-trends

  4. “American’s Rental Housing,” Joint Center for Housing Studies of Harvard University, 2024, https://www.jchs.harvard.edu/sites/default/files/reports/files/Harvard_JCHS_Americas_Rental_Housing_2024.pdf

  5. Jeff Rohde. “20 surprising rental property owner statistics [2022 Edition],” Roofstock, 2021, https://learn.roofstock.com/blog/rental-property-owner-statistics

  6. Drew Desilver. “As national eviction ban expires, a look at who rents and who owns in the U.S.,” Pew Research Center, 2021, https://www.pewresearch.org/short-reads/2021/08/02/as-national-eviction-ban-expires-a-look-at-who-rents-and-who-owns-in-the-u-s/