When inventories bounce back, investors will have the opportunity to scale their SFR portfolios considerably. Here’s how the right partner can help. Among the twists and turns that have characterized the real estate investment market in recent years is the broader interest in SFR properties. Prior to 2020, investors took note as millennials began flocking to single family rentals, attracted by the space a home could offer without the commitment of being tethered to a certain region. The pandemic strengthened SFR demand in 2020, as many work-from-home and school-from-home families sought more space but didn’t have the means to buy due to soaring home prices.
Investors have shifted their strategies to accommodate the evolving market.
“In terms of fixing and flipping versus buying and holding, what we’re seeing with our investor base is a more even split than before,” says William Tessar, president and CEO, Civic Financial Services. “Leading up to COVID, our volume was about 90% fix and flip and 10% long-term rentals. We’ve seen that change dramatically. We’ve had back-to-back-to-back record months over the past 90 days in both channels.”
Of course, with inventory as low as it’s been in decades, investors are adjusting their approach to negotiations, leading with their best (highest) offers. They recognize that while they may be dealing in smaller margins today, the time is coming when properties will be plentiful again. Strategic investors are positioning themselves for that moment.
“We have clients focused on both fix and flip and buy and hold,” says Terri Hunter, Senior Vice President, Business Development, ServiceLink. “With each of these strategies, it’s critically important to understand where the markets are going, identify which Master Service Agreements you want to go into, and be ready to act. Through all of this, it’s important to have a national service provider with a full spectrum of services to enable you to expand into those markets quickly.”
Tessar agrees. “If you’re a serious investor, you need to surround yourself with a serious team,” he says. “Our firm, Civic, funds over a billion and a half in service loans a year. That’s why we chose to work with ServiceLink. We don’t want the smaller companies that are in and out, and not there when you need them; that’s not a recipe for success.”
Overcoming Challenges Together
Tessar says that in his 37 years of lending, he has tested a variety of approaches and partners. His conclusion? “If you want to be big, you need to align big.”
He explains, “I’ve found that everything is fine when a transaction goes smoothly; you truly measure a relationship when a snafu or a break in the bridge occurs. We have turned away from some of the smaller escrow and title firms nationwide because when a challenge occurs, no one answers the phone and the transaction doesn’t close. We shifted our entire business model to more of a national play to give customers what they’re paying for — someone to be there when a problem arises. Working with ServiceLink, we know we’re going to get through transactions together, regardless of any challenges along the way.”
Hunter adds that many investors saw just how risky it could be for investors to work with smaller partners as so many of them folded during the pandemic. “It became clear how essential it is for investors to work with a partner with stability, nationwide coverage and a strong balance sheet,” she says.
Tessar expounds on the value of a solid balance sheet: “With a larger partner, you can decide to take your lumps on an indemnification or a lien that wasn’t recorded properly because you know you can make it up over the next 10 or 15 transactions. When you don’t have scale in your partnerships, you can’t do that. One of those transactions could cripple a smaller firm. We make sure our partnerships have scale and a balance sheet so we can make good business decisions in the best interest of our customers.”
Growing Your Business Together
There’s no doubt a national partner supports and strengthens investors through challenging times. But it’s also much more than that. A stable, flexible, strategic national partner can help accelerate your entry into new markets; provide specialized expertise and technology from title through closing (and in some cases, beyond); and accommodate your needs of the moment, whether that means scaling up or down.
Accelerating Market Entry
A partner with national scope can help you not only source new properties in your areas of interest, but also navigate the specific challenges of each region and requirements of each state. This national presence can save you the time and effort of needing to contact companies in each state. You can go in, identify target properties, make offers and close deals, quickly and efficiently.
Ideally, your partner will connect you with a single point of contact, someone who understands your goals, knows your entire business and values your relationship. This point person should provide you with consistency of service across geographic markets, always keeping your expectations and preferences top of mind.
Providing Specialized Expertise and Technology
The SFR market has its own intricacies that require a depth of expertise, particularly when non-performing loans or foreclosed properties are involved. Your partner should provide expertise in valuations, title, auction and, if you want the full one-stop-shop experience, property inspection and preservation. Having this diversity of expertise under one umbrella facilitates decisioning, title clearance, closing — every step in the process.
“Time is money in lending transactions; that’s why ServiceLink is so fortunate to have the backing of Fidelity National Financial,” Hunter shares. “We have access to underwriters who understand the complexity of certain deals and are able to make those decisions instead of handing them off them to a local title firm, which has to then go to an underwriter. Our underwriters live with our closing team. From the perspective of getting deals closed quickly, this is a true advantage.”
Also key to accelerating deals are title experts, including title curative specialists with strong experience in clearing SFR properties, and valuations experts who know how to speed the completion of appraisals. Investors don’t have time to sit around and wait for appraisals, yet the rush of market activity in recent months has overwhelmed appraisers. Aligning with the right partner can be critical to overcoming this roadblock.
In addition to traditional appraisals, ServiceLink offers alternative valuation products including automated valuation models (AVMs), desktop valuations that may or may not include third-party inspections; and a self-inspection tool called EXOS Inspect. Brian Pidgeon, Senior Vice President and National Sales Executive, ServiceLink, says, “Hybrid appraisals have been very popular among our investor partners, who tend to be on very tight closing timelines. We view our valuations from the investor’s risk management perspective and provide an independent opinion of value on these properties, calling out all the considerations of condition.”
Property inspection and preservation services round out the expertise a national partner can bring. As your SFR portfolio grows, especially into new markets, outsourcing inspections and maintenance to a trusted partner can bring true peace of mind. When that partner has a national presence, you can be assured that requests for inspections, repairs and regular maintenance services will be addressed promptly.
Scaling Up or Down
For investors looking to scale aggressively, a national partner is essential. Companies that process thousands of transactions month after month have the flexibility to apply resources as needed, meaning they can scale up when your needs multiply and scale down when activity levels off. Additional volume shouldn’t slow down your progress in any way!
Learn more about ServiceLink.