Albert Hernandez, like many other Phoenix real estate speculators, intended to profit on the city’s explosive boom. From 2011 until 2022, he worked part-time for a hedge fund and worked full-time for Venture Real Estate LLC. He’s been creating a portfolio of single-family rental homes, the market’s fastest-growing category. Notably in Phoenix.
“We blew up. Many investors and institutions are purchasing here, he noted.
A platform that lets investors prioritize repairs, acquire low-interest financing, and speed up the selling process helped him stay up with demand. Hernandez claims Flip OS can cut a four- to six-month work in half. Repair and flip isn’t always the easiest approach; it requires more cash and is riskier. “It always attracted me, but I waited until everything was ready. FlipOS makes it more simpler and less risky.”
The hot single-family rental market in the US is fueled by rising property values and institutional finance. Single-family houses now make up over a third of US rentals. A $85 billion industry for new single-family rental communities has emerged.
This market is still decentralized, making it difficult to build substantial portfolios of fresh products. Enter FlipOS and other solutions on the market to speed up the process of acquiring, upgrading, renting, and assembling single-family rental portfolios.
“Inventory is king,” stated Or Agassi, CEO and cofounder of FlipOS. Last February, the firm began working with Phoenix-area flippers to figure out their “black magic” — the ability to discover properties and renovate them quickly — and standardize it.
“We can generate capacity together,” Agassi stated. In addition to Georgia, Texas and North Carolina, FlipOs wants to expand to 20 areas by the end of 2022.
With billions of dollars moving into single-family rentals from firms like Goldman Sachs and KKR, others in the proptech industry see possibilities for software and tech that can ease the refurbishment and rental process.
“This is a very fragmented and offline service industry,” said Fifth Wall partner Dan Wenhold, whose venture capital company specializes in proptech. It takes time to build and maintain a big number of residences dispersed over a city or area. In property management, Wenhold says there are no national brands. As a national brand and a technological layer, there is a potential to manage portfolio value and services.
These include Lessen, a managed marketplace for service providers focused on single-family rental firms; Belong and Darwin, platforms geared toward smaller investors; and Mynd, a 2016 launch that now works with Invesco, which has directed $5 billion to buy single-family assets nationwide via the platform.
Doug Brien, CEO of Mynd, formerly ran Waypoint Homes, a 17,000-unit single-family rental business that helped pioneer institutional investment in the sector.
“The industry joke is swivel-chair management,” he remarked. It need three or four displays open with eight to nine systems to properly operate in the area. That doesn’t scale.”
Mynd’s objective is to provide a system that tracks an app’s life cycle from purchase to use. Because single-family houses are so spread out, property management is crucial to single-family ownership and operation.
“We need six million houses. We can close the gap quicker by speeding up the rehab procedure.
Mynd intends to grow from 20 to 40 markets shortly, managing 5,000 to 11,000 units. After that, Brien claims just 2% of the sector is institutional (per Urban Institute stats, 45 percent of single-family-rental landlords own just one unit, while in contrast, half of multifamily rental units are owned by institutional investors). As that sector develops to handle thousands of homes, so too will the mom-and-pop side of the business.
“It was unclear how stable and durable single-family renting would be in a major downturn,” Brien added. “It flourished throughout Covid. Since then, conventional investors have flooded the market with funds. They aren’t on a mission. Because there aren’t enough operators with the platforms to deploy money at scale, they have a mandate.
It’s impossible to assess the impact of this software on an already hot single-family rental market. According to Dwellsy, the median rent in February was $2,160, up 35% year-on-year. According to John Burns Real Estate Consulting, new lease growth in Phoenix was 13% last year. According to a recent report by Scottsdale economist Elliott D. Pollack, the area is “on the verge of a very catastrophic catastrophe.”
Making it simpler to acquire, rent, and manage assets might speed up the already rapid flood of cash into the market. But Agassi thinks faster flipping and higher investment volume benefits tenants. “This nation is short six million houses and that figure is growing,” he remarked. “By speeding up the rehab process, we can start closing that gap quicker. So more tenants will be able to move into secure, pleasant homes sooner.”
The iBuying movement, the rise of build-to-rent houses farther from city centers, and single-family rentals, particularly following a large foreclosure issue during the Great Recession, have all originated in Phoenix. A case study on how these new developments effect the market.
Single-family houses have traditionally been the norm in Arizona, especially in the Phoenix urban area. But, argues Alison Cook-Davis, assistant director of research at Arizona State University’s Morrison Institute for Public Policy, the region’s housing situation requires a lot more density. The renting market has grown very harsh: One-bedroom rates jumped 117 percent from September 2020 to September 2021 in Phoenix, and an anticipated 291 individuals each day migrate to the metro region.