It often seems like mom-and-pop landlords like me (landlords with 10 or fewer properties) are constantly under attack from forces outside our control. Most recently, it was the moratorium on evictions because of COVID-19, which is hopefully only a one-off threat.
A perennial threat to our business, however, are the institutional landlords -- the huge conglomerates like Invitation Homes (NYSE: INVH) or American Homes 4 Rent (NYSE: AMH) -- that buy up rental properties right and left, leaving no houses for the little guy (or for first-time homebuyers).
There isn't much a landlord can do about government mandates except to vote against bad policies when possible. But there are some things we can do to compete with huge rental companies.
Understand the history
After the foreclosure crisis of 2008, institutional investors bought millions of foreclosed homes, a phenomenon some described at the time as the biggest land grab since the Manifest Destiny. In other words, these big investors grabbed a lot of single-family homes.
Investors play an important role in putting a floor under falling home prices, preventing a complete drop to the bottom. But typically, investors sell when prices recover. After the foreclosure crisis, however, investors tended to hang onto their acquisitions, using them as rental properties.
To compare, in 2000, institutional investors owned only 6% of single-family homes, and by 2013, they owned 14%, which dropped to 12% by 2014. But that number could be growing once again as institutional investors are now buying whole neighborhoods of single-family rentals.
Know the current climate
Institutional landlords, such as private equity fund Blackstone (parent company of Invitation Homes), for the most part, view their rental properties as spreadsheet items, and only the numbers are of interest.
The biggest complaint tenants seem to have is regarding maintenance. The big landlords are often stretched thin when it comes to maintenance workers; in many cases, they simply don't have enough maintenance staff to go around. The result: Tenants who have a maintenance request sometimes go ignored. These tenants then need to live with the problem or fix it themselves, which is not what they signed up for as a renter.
Mom-and-pop landlords, on the other hand, work directly with tenants. And responsible landlords (as opposed to the slumlord types), care about their tenants, communicate with them whenever repairs are needed, and take care of the problem in a timely manner.
Know your strength: personal relationships
Every time I list a property for rent, at least a few potential applicants ask me if I'm the owner. When I tell them I am, they breathe a sigh of relief (no exaggeration) and let me know that is the only way they'll rent again. Why? They've been ignored in the past by some faceless entity that owns their property, and they don't like that. They much prefer knowing who their landlord is and to know they are valued.
Know the weakness of the institutional landlord
Generally speaking, tenants are not treated as well when renting a place owned by a huge conglomerate. The application requirements tend to be stricter (and there is no way to plead your case person to person), the rents tend to be higher, late fees can be excessive, the properties tend to not be maintained as well, and eviction rates are higher, at least in Atlanta, according to the Federal Reserve Bank of Atlanta.
There have also been reported problems with the return of the security deposit and about tenants being billed for repairs that should fall under normal wear and tear. The business model of some institutional landlords that engage in these practices seems to be, "Go ahead, sue me."
Fight against unintentional consequences: vote
When reports of institutional landlords get bad, as they have in some cases, regarding price gouging, heavy-handed evictions, and shoddy adherence to maintenance, tenants rights' groups start to gain ground. And it's no wonder when some tenants are being taken advantage of. And guess who gets hurt when government restrictions limit what landlords can and cannot do? The mom-and-pop landlords who were most likely doing the right thing all along and are least likely to survive under heavy government mandates like rent control or policies like Seattle's first-come, first-served law.
The Millionacres bottom line
The single-family-home rental market is growing. But mom-and-pop landlords are increasingly being squeezed out of this sector because of institutional landlords. It's clear that renters, if they can compare, typically prefer to rent from a mom-and-pop landlord. Use that to your advantage.
When you market your property, let it be known that you're the owner. Be personable with each applicant and review all your applications without only focusing on numbers, being flexible if it makes sense. Be there when your tenants need you. There will always be a market for the type of service only a mom-and-pop landlord can provide.