Have you noticed a change in the type of owner clients who are seeking out your expertise over the last few years?
In the surveys of hundreds of rental property owners that we run each year, we’ve been tracking a shift in the proportion of Accidental Landlords to Small-Portfolio Investors that began prior to the pandemic, but has accelerated over the last year.
In 2018, Accidental Landlords made up 1 in 3 rental owners in property managers’ client base; but today, they represent 1 in 4. At the same time, the number of investors has ticked up from 2 in 3 rental owners to 3 in 4.
What’s behind this shift, and what does it mean for property managers who serve small-portfolio rental owners? That’s what we’ll talk about in this post.
What’s an Accidental Landlord, and Why Are There Fewer in the Rental Market Today Than in the Past?
First, some of you might be asking: What’s an Accidental Landlord?
Accidental Landlords came to own rental property for circumstantial reasons, and they don’t consider themselves investors. In comparison with other rental owners, they’re more likely to own a single unit (most often a single-family home). In many cases, they enter the rental market because the additional income helps them pay the mortgage on a property they’re not ready to sell yet, whether it’s a home they inherited or used to live in. A significant portion of Accidental Landlords over the last decade first began renting out their properties out of desperation during the foreclosure crisis of 2007–2010, allowing them to afford to hold onto their property until it regained its value.
However, Accidental Landlords likely don’t represent as large a percentage of your client base today as they did 10—or even 5—years ago. Today, just 24% of rental owners identify as Accidental Landlords. This represents a decrease of 8 percentage points since the peak for Accidental Landlords in our respondent base in 2018, including a sizable decline in the last year alone.
Why are so many Accidental Landlords selling their properties right now? There are two main factors at play: First, the current seller’s market has given many reluctant rental owners the opportunity to offload their properties for a significant profit. Second, the complexity and cost of operating a rental property has increased significantly over the course of the pandemic, and this has tipped the balance for many Accidental Landlords who had considered exiting the rental market—particularly as many reach retirement.
The Accidental Landlords who remain in the rental market in 2022 and beyond aren’t necessarily the same ones who have been a part of your client base in the past. In comparison with investors, Accidental Landlords are still less savvy about real estate, less hands-on in running their properties, and more likely to own property for personal reasons.
But in comparison with the Accidental Landlords of the past, many current owners have acquired their properties in the last 5 to 10 years; and they’re more likely to view those properties as an investment, leverage them as a source of income or retirement savings, and turn to their property manager to help them increase their profits—and even explore the possibility of building out a portfolio.
Among the Accidental Landlords who have held onto their properties, their demand for property managers remains steady—and in fact, it’s higher than ever. There will always be homeowners with a property that they see the benefit in renting, but who don’t have the ability or the will to manage it themselves, even if these owners have come to represent a significant minority rather than a majority.
Who Are Small-Portfolio Rental Investors, and Why Are There More Than Ever in the Rental Market Today?
Next, we’ll talk about the other category of rental owners that property managers are likely to see in their client base: small-portfolio investors. We’ve identified two different kinds of investors: Intentional Investors, who purchased rental property as an investment from the start; and Unintentional Investors, who came to own rental property for circumstantial reasons (like Accidental Landlords), but increasingly consider themselves investors. Investors are much more likely than Accidental Landlords to own multiple rental properties (and to have plans to grow their portfolios over the next two years), but some own a single property that they operate as a source of active or passive income. Most don’t consider themselves professional real estate investors or full-time landlords.
As of January 2022, the proportion of investors in property managers’ client base is higher than ever:
- 52% of rental owners now identify as Intentional Investors. This represents an increase of 8 percentage points since 2018, including a rise of 3 percentage points in the last year alone; marking a high point for the percentage of Intentional Investors in our respondent base.
- 24% of rental owners now identify as Unintentional Investors. This represents an increase of 8 percentage points since 2019, including a rise of 2 percentage points since our last survey in 2021. This is the first time that Unintentional Investors have been as common in our respondent base as Accidental Landlords.
For the last few years, property managers have noticed that their client base is filling with new investors seeing a prime opportunity to enter the rental market, and are also seeing their existing investor clients take the chance to expand; and the pandemic has accelerated these trends. Investors are taking advantage of soaring property values and rent growth in the current market to increase their holdings: Over the next two years, 45% of investors plan to add new residential rentals to their portfolios.
Largely as a result of this growth in the investor population, more rental owners than ever before own their properties primarily because of the income that they provide, rather than for reasons that are more personal. This includes 57% of investors whose properties provide a passive stream of income—for example, income that funds their retirement—and 33% whose properties provide an active stream of income. This reality has implications for what rental owners expect when they hire a property manager to assist in operating their rentals, as well as how property managers can prove their value to attract and retain investor clients in 2022 and beyond.
How Many of Today’s Rental Owners Are Interested in Property Management Services?
There’s another shift that property managers may have noticed within their client base over the last few years, and that’s the number of rental owners who are interested in their services. The uncertainty and complexity that descended on the rental market during the pandemic seems to have resulted in a sustained surge in the number of rental owners who work with a property manager to run their rental properties. As of January 2022, 63% of rental owners currently have a property manager, which represents a sizable increase of 8 percentage points since 2019.
71% of Accidental Landlords currently work with a property manager, making them the most likely of the three investor types to hire a professional to run their rentals. However, though investors are not nearly as likely as Accidental Landlords to have a property manager at the moment, a majority still do, including 62% of Intentional Investors and 59% of Unintentional Investors.
The pandemic has seen rental property ownership grow more complex and less profitable. As a result, rental owners are increasingly turning to property managers for their expertise in running rental properties efficiently, profitably, and legally in their local markets.
However, rental owners’ margins are smaller than ever, they’re more reliant on their rental income than in the past, and as a result, their expectations for property managers are higher. To win the business of today’s Accidental Landlords and Small-Portfolio Investors, property managers will need to understand their needs on a deeper level than before, then adapt their offerings to match their evolving demands. It’s this extra effort that will make it possible for property managers to sustain a thriving business in a competitive marketplace.
And that’s why we’ve created a two-report series on attracting and retaining Accidental Landlords and Small-Portfolio Investors in the current environment. When you read the reports, you’ll discover the biggest opportunities you’ll have to exceed your clients’ expectations and expand your business in the year to come, including research-based insights on the following topics:
- Where rental owners most need a property manager’s help in 2022
- What makes rental owners decide to hire a property manager
- The services and technologies that rental owners expect their property manager to provide
- And more