Single Family Rental Companies: Challenges for 2023

"If you have built castles in the air, your work need not be lost; that is where they should be. Now put the foundations under them." Henry David Thoreau

Single Family Rental Companies (SFR) face many challenges in 2023. Many of the factors are outside of their control, including the economic and political climate. Below are some of the significant challenges facing SFR companies. Overcoming these challenges in 2023 are key for continued success.  

Supply and Demand

SFR demand has increased significantly over the past several years. While many are working to resolve the problem, unfortunately the supply has not kept pact. Due to this issue, prices are on the rise. This has led to increased competition for rental properties and higher prices for tenants. To overcome this challenge, single family rental companies can focus on developing new rental properties or renovating existing homes to meet the needs of tenants.

Increased Regulation

Governments from local municipalities up to the Federal level are increasingly imposing or considering stricter regulations on single family rental companies. The primary reason for increased regulatory activities appears to be an effort to protect tenants from unsafe or unfair housing practices. As with any industry, additional regulations can impose cost increases, limiting profits of SFR companies. Regulations make it more tedious to operate almost any business. This is considered by many to be a necessary process as SFR demand grows. To overcome this challenge, rental companies can stay informed about the latest regulations and take proactive steps to comply with them.

Economic Uncertainty

Which side of the news do you read? Not politically, information can be found showing economic growth and decline for 2023. This is evidence of the number one thing that most can agree on: uncertainty. Interest rates are on the rise, inflation and political instability continue to drive the uncertainty. As these factors remain uncertain, it can be more difficult for SFR companies to secure financing and manage cash flow. Cost reduction is one of the answers to this challenge, but this can lead to more uncertainty as we wait for some of these economic factors to level off. 

Competition

Institutional investors are increasingly entering the single-family rental market. Even so, smaller investors still make up considerable market share. However, as the larger SFR companies continue to take hold, options become important for potential tenants. Relationship management with tenants has become more important than ever. Customer service is becoming a must for SFR companies. Additionally, proactive maintenance is key to maintaining high quality and attractive rental properties.

Attracting and Retaining High-Quality Tenants

All of these factors play into the most essential thing of all: Attracting and retaining high-quality tenants. Competitive markets have made this more challenging and regulatory items and economic factors continue to make it more expensive.  In many markets, tenants have more options than ever to choose from. Not to mention the price of homes is on the decline, making homeownership attractive in many markets.   Again, quality service and a positive environment coupled with competitive rates can help accomplish this most important item! 

As with many industries, single family rental companies are facing a number of challenges in 2023. The first 6 weeks of 2023 did not provide many answers. Increased regulation and competition are on the horizon. Cost reduction and building out stronger relationships with tenants while proactively maintaining properties will allow SFR companies to overcome the challenges and succeed into the future.