According to The Property Manager's Guide to Attracting and Retaining Small-Portfolio Investors, a report published by Buildium and Propertyware, 52% of rental owners now identify as intentional investors, an increase of eight percentage points since 2018. Accelerated by the pandemic, the market has shifted from accidental landlords or those who hold onto a property for personal reasons, to those who are looking for income from the start.
If you too are looking to invest in real estate property, it is essential to plan ahead. Take time to educate yourself on the basics of real estate investing, as well as the challenges you may face in the process. Consider this your “ultimate” guide.
Here, we outline the typical paths to real estate investment, different types of small-portfolio investors, and common struggles investors face. Through this guide, you can determine which path you’re on, how to best invest, and how to avoid a few pitfalls along the way.
There are three typical ways people enter the real estate realm. While the majority buy properties to rent as intentional investors, many stumble into real estate investing and become overwhelmed quickly. Which type of real estate investor are you?
Intentional investors make up 52% of real estate investors. They buy properties with the express intention to rent them out for profit.
This type of investor is likely to:
The unintentional investor makes up nearly one-quarter (24%) of all real estate investors. This type of investor has stumbled into a profitable real estate situation either by necessity or as a hobby.
The unintentional investor is likely to
The final category of real estate investor is the accidental landlord, coming in at 24% of all investors. This type of investor has become a landlord completely by accident.
They are likely to:
Before the pandemic, a larger percentage of homeowners purchased their primary residence as a long-term investment for themselves. Now, however, more property owners than ever own rental property as a primary or secondary source of income.
Whether you’re entering the market intentionally or not, you’re probably interested in strategies that will maximize profits and minimize risk. The strategies that will work best for you will depend on the type of small-portfolio investor you plan to be. Let’s look at the four approaches to small-portfolio investors to determine your next steps.
Across the board, whether intentional, unintentional, or accidental, small-portfolio investors tend to fall into one of four categories.
DIY landlords run their rental properties without the assistance of a property manager. 32% of small-portfolio investors fit that profile in 2022, representing an increase of just one percentage point over the last year as the number of rental owners who work with a property manager has stayed relatively even.
Growth-focused investors are actively acquiring new rental properties. 31% of small-portfolio investors fit that profile in 2022—a number that’s stayed steady since 2021 as investors’ interest in expanding their portfolios has remained strong.
Distance investors are actively growing their portfolios and need a property manager’s help looking after the rental properties they don’t live near. 12% of small-portfolio rental owners fit this profile in 2022, an increase of one percentage point over the last year.
Profit-conscious investors want a property manager’s help in increasing their properties’ profitability. 8% of small-portfolio rental owners fit this profile in 2022, representing a small increase of one percentage point since 2021.
Next, we’ll explore the top 5 struggles of real estate investors as reported by Buildium in their 2022 Small-Portfolio Investor Report.
Maintenance remains rental owners’ top source of stress in 2022, as it has been for the five years that Buildium has surveyed investors’ pain points. More than double the number of rental owners selected this as a top concern than any other issue.
Accounting, bookkeeping, and taxes are also among rental owners’ top three sources of stress, having increased from the years prior to the pandemic, potentially in response to a rise in financial difficulties among both rental owners and their residents.
The fact is that investors are feeling slightly more stressed about accounting and bookkeeping than accidental landlords, perhaps because of the increased complexity of managing multiple investment properties.
Finding and working with a property manager were one of rental owners’ top three sources of stress, according to the report, including among investors. The level of stress that rental owners feel about finding and working with a property manager seems to be in proportion to their likelihood of having a property manager at the moment.
Accidental landlords, who are the most likely to eventually partner with a property manager, feel the most stress about finding and planning how to work with one initially, followed by intentional investors, then unintentional investors, who are the least likely to currently work with a property manager.
Property managers can help lower rental owners’ stress levels by setting accurate expectations regarding the value they can expect to see and the communication they can expect to receive from the outset of their professional relationship.
Renovations are rental owners’ fourth-highest source of stress in 2022. This represents the highest position that this pain point has ever held, suggesting that rental owners could be feeling the pressure to update their properties to justify higher rents and attract and retain great residents in the current market.
Unintentional investors are more stressed about renovations than intentional investors are, perhaps because they have less experience in treating their property as an investment, so they are less likely to have dealt with these types of projects in the past.
Legal issues have steadily risen up the list of rental owners’ concerns since 2018, and now occupy a higher position than ever before. However, in terms of the actual number of rental owners who selected this as a top stressor, the number has actually decreased since its height during the pandemic, perhaps as the onslaught of regulations spurred by the pandemic has slowed.
Investors are more stressed about legal issues than accidental landlords are, perhaps because they’re more likely to be running their properties without an expert on hand, or because they’re simply more aware of the complexity of operating a rental property in the current regulatory environment.
Partnering with a professional property management company can be invaluable to all types of real estate investors. However, there are five typical ways property managers make a tangible impact and prove their value.
The number of rental owners without a property manager who selected maintenance as a top stressor was 7% higher than those who do have a property manager to help them maintain their properties and address emergency repairs.
This isn’t a surprise, since one of the biggest ways property managers save investors money is through their ability to negotiate better (aka cheaper) contracts with various professionals. Plus, they bring those contractors more work than just one property. Because of this, property management companies are able to negotiate lower rates than the typical landlord or investor can. This saves everyone money over time.
Of course, property management companies aren’t legal professionals, but they do have experience with legal issues that your typical real estate investor does not. In fact, through years of industry expertise, they’ll likely have a solid understanding of local laws and can offer you initial advice, avoiding common pitfalls and the legal fees that can accompany them.
Rental owners with a property manager are less stressed about legal issues than those who run their properties without an expert’s assistance by a difference of 12 percentage points—the largest difference on our list, illustrating the peace of mind that hiring a professional who’s well-versed in property management laws provides to owners.
Property management companies have the technology already in place to make it easy for tenants to pay rent, file maintenance work orders, and submit requests online.
Add in the digital marketing skills that the best managers have at their disposal, and you’ll have a much easier time attracting residents that are the right fit and keeping them renting for longer.
In addition to negotiating more affordable contracts, most property management companies also have access to better-quality contractors. They’ve already done the leg work of vetting contractors and building relationships. They have more connections and access to better workers that ultimately provide more cost-effective, higher quality, and longer-lasting results.
If you’re looking for good real estate investment opportunities, you may venture outside your market to get in on a booming area. Partnering with a local property manager gives you an on-the-ground expert. Then you enjoy the freedom to build your real estate investments from wherever you live.
In addition to gaining a local expert, a property manager can act as a trusted advisor when looking to expand your real estate portfolio. If you’re taking a growth-focused, profit-driven, or long-distance approach to real estate investment, bringing a trusted advisor into the equation is extremely beneficial.
Property managers take the stress and day-to-day-management off your plate. Plus, they have experience with a variety of worst-case scenarios that you can benefit from. Whether that means making sure that your property has the right insurance in case of emergencies, protecting yourself if accidents occur on the premises, or settling disputes between tenants, property management companies have you covered.
Hopefully, you’ve gained a clear understanding of what type of investor you’d like to be and a few simple ways to avoid common problems with your investment property. But if you’re looking for professional property management services, there’s no better place to begin your search than with us. Find local companies to help grow your business. Start for free today.