Single-family properties are a big ole’ wave. And like it or not, you’re either riding it, about to ride it, or at risk of being buried beneath it.
Motley Fool reported that in the third quarter of 2021, investors purchased 90,215 homes with a total approximate spend of $63.6 billion. That’s not just a lot of objective cheddar, it also accounts for an unprecedentedly huge chunk of total real estate investments. As of this year, single-family homes make up 74.4% of all investor purchases–the highest percentage on record.
Why? You know why. Everyone knows why. Because right now, and for the foreseeable future, all roads lead to and from the pandemic. Government aid left many of the traditional first-time homebuyers flush with cash, remote work inspired a rush for more space, and freedom from commutes created a reverse 1920s migration from cities close to commercial offices to rural areas with good internet and attractive amenities. Supply followed demand, and investors have been scooping up, souping up, and turning around as many single-family properties as they can get their hands on.
Where opportunity strides, cruel logistics follow.
That sudden boom, like all sudden booms, has exposed the logistical flaws and operational soft spots of many property investors.
Chief among them? The horrible, expensive logistics of managing utilities.
Say, for example, you recently purchased an indeterminate number of new properties. Many of them are in different cities throughout a given state, and several of them are scattered across different states. Once they’re up to snuff and move-in ready, they’ll be an excellent source of new income and a sign of momentous growth.
But you know what obstacle is glaring out from all of those properties? Their connections to vital utilities are governed by different municipalities with varying regulations, expectations, and barriers to entry for transferring responsibility and paying out to providers.
On top of that, ALL of those providers have different addresses, contact information, and processes for interacting with them.
So the very crucial act of getting the lights turned on and the heaters roaring for the contractors you need to prep your properties is a looming series of complicated tasks.
And every day that work is delayed is a one-to-one bite out of your bottom line.
Snapping up properties creates an exponential issue.
The word “utilities” gets thrown around for convenience’s sake, but it can lead to the very wrong idea that “utilities” are one consolidated thing. For many municipalities, they can be split, combined, and organized into several different billable clumps, most of which are made of one or more of the following services:
The problem? Let’s make the math easy and assume that each of your new properties has all four services invoiced separately (which, again, is the way many communities bill). If you expand your portfolio by just 300 properties, you’ll end up having to track and pay 1200 new invoices.
You’ll also have to organize them into the cadence of your organization so that they’re paid on time (many of them will have different due dates), you’ll need to audit them monthly for errors–and you’ll have to scrupulously ensure that your tenants are rigorous about paying their bills because many utilities are lienable assets and you can be held responsible if they stiff their providers.
Ride the wave responsibly. Automate early.
You want to know the best way to build a clock? Let it build itself. Clocks are complicated and you have work to do.
The need we’ve seen come bubbling up from the churn and boil of so much growth in the single-family market is automation. Most investors do not have the personnel or technological infrastructure to take on the sudden influx of new utilities complications that come with a major investment in rental properties. Heck, even larger firms–whose investments often scale with the size and resources at their disposal–find themselves biting off more than they can chew. And what have we seen happen again and again in the decades we’ve been serving single-family investors? Bad habits. Bad, bad habits.
Utility bills end up being shuffled onto accounting personnel. They’re rarely audited. Late fees are accepted as par for the course. The entangling webs of different and changing utility regulations across the geographic spread of portfolios are faced valiantly, and a combination of human error and desperate effort turn utilities into the nightmare that it is for investors across our industry.
Those things are bad. Don’t do those things.
Whether you’ve recently grown, or you’re about ready to start expanding your portfolio, the time to automate as much of your utility processes as possible is now, before things get crazy and crazier. Bill payments, audits, transfers of responsibilities, and bill correction haggling can all be assigned out to a combination of automated technologies and management services.
The benefits of hewing utility management off of your list of headaches isn’t just intuitive and pleasant, it’s measurable.
- After automation, overall utilities expenses are usually lowered by about 15%.
- 70% of invoice quality review, processing, and payment tasks are wholly eliminated.
And while the cost to process an invoice internally is typically about $30 (accounting for personnel, time, and human error), the cost of an invoice automatically processed by a tech and management firm is typically about $7. Tally up your invoices each year and run those numbers. It’s a lot more savings than you probably think it is.
If you’re interested in capitalizing on the race for inventory and expanding your portfolio, don’t go it alone. You’ll be a lot more dangerous and far more successful by investing early in a scalable service that takes utilities off your plate.