The single-family rental (SFR) market is one of the fastest-growing asset classes for investment, with SFR home rents and occupancy rising by 5.7% last year, according to The Wall Street Journal. With increased demand and dwindling supply, the market continues to heat up with SFR investors facing increased competition and scrambling to acquire properties even faster across the nation.
Whereas in prior years SFR investors had the luxury of more time to conduct due diligence before acquiring properties, in today’s red-hot market that timeline is significantly condensed. Yet, the due diligence process largely remains unorganized, inefficient, and inaccurate, which not only slows down an investor’s ability to acquire properties quickly, but it can also directly impact the bottom line.
To streamline the due diligence process and acquire properties with more speed and accuracy, SFR investors should consider the following tactics.
Identify bottlenecks and secure partners to assist
SFR investors should first determine where the bottlenecks are in their due diligence process and what is getting in the way of their success. Are you losing time and money by hiring or sending a team across the country to analyze properties in-person? Do you have an electronic and methodical system for inspecting properties and collecting data to ensure accuracy across your entire rental portfolio? After identifying the challenges, SFR investors should consider securing partners that offer solutions, and ones that can help them operate more efficiently and increase their rental portfolio profits.
Create a scalable solution
Investors should create a scalable solution for their due diligence efforts whether they are investing in one market or in 50 markets to acquire and grow their portfolios with speed, efficiency, and accuracy. Start by creating a model, workflow, or process for analyzing properties in one market. Find the right partners to help you implement the process and then test the outcome from both a speed and accuracy standpoint and to ensure the process is scalable. By creating a scalable due diligence process, SFR investors can quickly acquire properties and move into new markets without having to hire a team and use additional resources every time.
Collect data to streamline property analysis
Investors should be methodical when analyzing each potential acquisition and should use the same datasets each time. It’s important to collect data and have it organized so that you can largely make decisions based on measurement and metrics. While the human element still plays a role in the due diligence process, it’s best to reduce it as much as possible and base decisions on the datasets instead. For instance, if you have 10 different people going and reviewing 10 different properties with 10 different ways to look at it, you are going to have inefficiencies. You are not going to be able to grow as fast as you want. You might make mistakes on the materials side, or the construction side, or the budget for renovations to get that property up to your portfolio standards. The way to mitigate this is to ensure you are analyzing every potential acquisition the exact same way so that you are creating a process that can be repeated.
In addition, SFR investors should take a close look at change order percentages – How often are you hitting the mark on your estimates for renovations for that particular property? This can really impact cap rates and overall portfolio health if you are continually over and/or underestimating what it is going to take to get the property to a rental standard, and as a result, you are leaving a lot of money and time on the table.
Leverage technology
The idea that decisions makers must physically visit a property during the acquisition stage is the old way of doing things. There are appraisal companies that now appraise properties remotely from a desktop and they can bifurcate that process, and this can also be done for due diligence by leveraging technology to help inform decisions and scopes for renovations without ever seeing the property in-person.
One of the most powerful digital tools to help streamline the due diligence process is the 3D tour. A 3D tour of both the exterior and interior of a home, allows investors to immerse themselves in that property in a real-life way. In addition, an electronic property condition report prepared by an experienced third-party company is equally as important and can provide a snapshot of the condition of the home, along with details of any needed repairs. An investor cannot tell if the house smells like smoke or has a pet odor simply by looking at a 3D tour, therefore, it must also be physically inspected to provide a holistic view of that property with data to support it.
At PlanOmatic, our Property Insights services which includes a Property Condition Report, Property Detail Report, and 3D Inspection Tour for properties across the nation, and delivered within 48 hours from the time an order is placed, allow SFR investors, owners, and operators to make fast, accurate and well-informed decisions throughout the property life cycle, including acquisition, renovation, and leasing.
In closing, there are numerous ways in which SFR investors can streamline the due diligence process today to acquire properties faster and to scale into new markets without adding resources. By finding great partners, collecting data, and leveraging technology, SFR investors can increase their rental portfolio return on investment
Kori Covrigaru is the Co-Founder and CEO of PlanOmatic, the biggest and fastest provider of Property Insights and marketing services for the single-family rental industry nationwide. With a national network of hundreds of contractors and 40 employees, Covigaru has met the moment with the unique value proposition PlanOmatic offers through technology combined with property insights to support their clients’ goals.
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