Home Contributors Outlook: Big SFR Firms Raising Rents, Taking Share, and Improving Efficiency

Outlook: Big SFR Firms Raising Rents, Taking Share, and Improving Efficiency

John Burns Real Estate, Single-Family Rental, SFR, Built to Rent, BTR
Photo by Porter Raab on Unsplash

By JT Graham and Reid Randall

Rent Increases Driven by a Substantial Shift to Renters by Choice

The tenant profile in professionally managed build-to-rent and single-family rental communities is significantly shifting. There is a growing trend of even more tenants choosing to rent single-family homes rather than buy one. More prospective homeowners believe that prices and rates will come down and more resale buying opportunities will emerge, so they are delaying their home buying.

This shift has led to a rise in the number of renters who are less rent-sensitive, creating demand for higher-quality rental properties. These renters, by choice, value superior interior finishes, better amenities, and overall design, which were not commonly available 15 years ago. As a result, property owners and managers can command a premium for such properties.
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The Bigger Firms Are Grabbing Market Share

While the large SFR firms purchased 90% fewer homes in the first two months of 2023 than in the first two months of 2022, we sensed that their strong balance sheets and longer track records will serve them well for the balance in 2023.

Tightening lending standards have made it increasingly difficult to get BTR and SFR deals underwritten. Larger Single-Family Rental (SFR) owners have an easier time obtaining financing than smaller operators, especially today. Larger investors have more established relationships with lenders and can access a broader range of financing options.

In addition, larger SFR investors have a proven track record of managing and maintaining their properties, which makes them a safer bet for their capital partners. They have the resources and expertise to handle unexpected expenses and market fluctuations. They can also absorb any potential losses from defaults or vacancies better than smaller operators, who may have limited resources to fall back on. As a result, many (not all) smaller operators may struggle to obtain financing or may be forced to pay higher interest rates and fees than larger investors.

The Year of Operational Efficiency

The exhibit area was full of companies with technology to make operating single-family rental homes even more efficient. Since few are doing deals, most are focusing on operational excellence to drive improved earnings and sustainable growth. The goals were primarily improving the experience for current and future tenants, reducing turnover, lowering vacancies, and increasing employee satisfaction.