The Case for a Better Housing Rental System for both Landlords and Tenants

Written by Todd Miller

Mar 19, 2022

It all started with a book in 1931 written by James Truslow Adams, an American author who 99.9% of all Americans have never heard of. His book titled “The Epic of America” had a quote in it that most Americans today have heard over and over throughout their lifetimes. Most politicians have uttered the phrase while campaigning for office. The term he used “The American Dream” which he referred to as a country where every person can achieve the highest social and economic achievement possible regardless of their inherited wealth or social status at birth.

Owning a home has almost been always considered at the heart of The American Dream.

But what about renters?

HUD estimates that over 36% of all households are tenants. If you remove large cities, where most tenants live in multi-unit buildings, then most tenants are living in single family homes. But who owns all these single family homes?

According to the IRS, between 10 and 12 Million taxpayers in the US declared rental income on their taxes. Overwhelmingly these people are “mom and pop” landlords, owning between 1 and 5 properties which they rent out, either themselves or using a licensed property manager. Which means there are likely 5-10 Million slightly different experiences a renter would have to go through to rent a house.

Let’s start with home search.

There are currently three common ways to find a rental. Online searches, hiring a Realtor or driving neighborhoods looking for signs. In a hot rental market, there is almost no need to do online advertising. Placing a For Rent sign in front of a house and having a Realtor put a rental listing in an MLS will likely lead to having a rental agreement signed within days.

But what about the rest of the time?

On average a rental sits vacant for about 40 days. Less in a hot market and more in a slow market. But what’s most likely is that homes managed by property managers tend to rent quicker, and those managed by “mom and pop” operators tend to be longer. Property managers usually have far more resources to market and place tenants than individual landlords. This is good for the property manager, but not always best for the tenant. Not having access to the property or having access to a system that can help connect the tenant to the landlord is an inefficiency in the marketplace that seems like an almost insurmountable task. Which is why most landlords use property management companies.

So why not just use a full service property manager?

While most landlords use a property manger the average fees are between 8%-12%. On a property that gets $2,000 a month in rent, that’s around $200 a month going into the pocket of the property manager. If the landlord has a loan and only has $300 a month of positive cash flow before management fees, then the property manager is making more per month than the landlord is. Most landlords would prefer to manage their properties and keep that money for themselves. But there isn’t currently a cost-efficient technology that allows landlords to do this.

What would this look like?

Landlords would need a couple tools that don’t exist. They would need access to a way to advertise their properties to renters, a way to screen tenants, a way for tenants to view homes after being preliminarily identified and qualified, and an easy way for both to agree to rental terms so that the rights of both tenants and landlords are protected, and the friction of the process is less for the tenant, and the cost to the landlord is less as well. This includes the on-going tasks of making repairs and collecting rents in an efficient and transparent manner.

A hybrid system is likely the most efficient solution.

Most landlords want to save money when renting a home. They also want to have less responsibility for the day-to-day operations that would be required. Property mangers usually manage about 150 properties with a full-time assistant. They have access to software and systems that they pay for in bulk, but that aren’t affordable to individual landlords.

A hybrid system would be one where a landlord has a virtual property manager, similar to how AirBnb manager short-term rentals, and also have access to a technology platform that contains a self-guided touring system for tenants, a security and financial screening tool, and a better tech for landlords to collect rents. After the lease is signed, there would need to be a technology solution for reporting repair needs and dispatching and monitoring the work being done, so that both the landlord and tenant can both monitor the progress and communicate effectively and quickly.

A hybrid system would have more technology, more communication, more transparency and still have a virtual property manager assisting to fill in the gaps and to provide a human touch when things just aren’t going perfectly.

Its been 80 years since James Truslow Adams coined the term “The American Dream” and while technology has changed exponentially during that time, the process to rent a home hasn’t kept up. Its time for a change to a better system for landlords and renters alike that leverages technology, makes the process easier for tenants and lets landlords put more money in their pocket.