The end of the kindly ‘mom-and-pop’ landlord

Local landlords are drawing on Wall Street’s nastiest tactics to jack up rents.

Daniel doesn’t think of himself as a mom-and-pop landlord. The 42-year-old engineer is a savvy real-estate investor, the kind of guy who scours the internet to find nearby rents and combs through new listings with an eye toward expanding his mini empire. He owns nearly 30 rental homes, and while he outsources their day-to-day management to a large company, he makes sure his properties are within a 1½ -hour drive of his Atlanta home so he can stop by if necessary.

Real-estate insiders often divide owners of single-family rental homes into two groups. There are the big guys — a small number of cash-flush “Wall Street investors” who own hundreds or thousands of properties — and then a whole lot of little guys, or mom-and-pops, who own the vast majority of single-family rentals. The stark, black-and-white divide has proved useful for all types of groups: Big companies point to the prevalence of mom-and-pops as proof that corporations like themselves are nowhere close to taking over the market. Politicians invoke the Ms-and-Ps to highlight the contrast between the new class of greedy Wall Street landlords and the industry’s humble origins. But Daniel, who requested anonymity to speak freely about his investments, is a prime example of the blurring line between the two factions — nowhere near the size of the private-equity firms who gobbled up entire blocks of homes during the pandemic but a far cry from the old guy who lives downstairs and hasn’t raised rent in a couple of years. In this binary world, he’s stuck with the mom-and-pop moniker.

The past few years have solidified single-family rental homes as genuine moneymaking enterprises, not just ho-hum nest eggs. It costs nothing for small-time landlords to cruise through Zillow and see what their neighbors are charging, which makes it easier to price their rentals more aggressively. Meanwhile, a whole ecosystem of startups has sprung up to meet the every need of mom-and-pop landlords, from basic stuff like tenant screening to the minutiae of air-filter delivery. Bryan Smith, the chief operating officer of AMH Homes — one of the truly big landlords, with a portfolio of more than 59,000 homes — noted in a recent call with analysts that mom-and-pops hadn’t traditionally been known for raising rents. But over time, he said, they’ve “migrated into a strategy that’s closer” to that of big players such as AMH. Translation: The Wall Street mindset has gone mainstream.

In fact, I think it’s time to retire the label of “mom-and-pop landlord.” There may be plenty of aging couples or “accidental landlords” sailing into retirement with an investment home or two in their back pockets, but even the smallest of landlords, lured by the promise of greater efficiency and fatter profits, may no longer be content to merely have heads in beds. A steady stream of rental data and an onslaught of new property-management services have made amateur landlords savvier than ever. And that’s to say nothing of the changing of the guard as baby boomers age out of their property-owning days, which leaves millennials and Gen Zers to take on the mantle.

In other words, your kindly mom-and-pop landlord is about to get a lot more cutthroat.

Until recently, there was no need to distinguish between mom-and-pop owners of single-family rentals and their suit-clad counterparts. Institutional landlords — massive investment managers with billions of dollars to spend on single-family homes — didn’t exist before the housing market’s crash in 2008. Most big investors assumed it would be too complicated and expensive to manage portfolios of homes scattered across neighborhoods and cities. Corporate behemoths were content to spend big on apartment buildings and let the little guys handle homes.

The burst of the housing bubble flipped this logic on its head. An abundance of cheap homes offered the perfect entry point for private-equity-backed firms, while new technology allowed large companies to efficiently and cheaply manage properties scattered across the country. Between 2007 and 2014, the number of single-family rentals jumped from fewer than 12 million to more than 15 million, according to an analysis of census data by the Harvard Joint Center for Housing Studies. Then came the pandemic, which cemented the idea that single-family homes were a great bet. Booming housing demand drew all kinds of investors into the market — in the first quarter of 2022, a Redfin analysis found, landlords accounted for more than 20% of all home purchases.

Institutional investors — those with more than 1,000 homes in their portfolios — own about 426,000 of the 14.2 million rental homes today, John Burns Research and Consulting found. Most of those properties are in sunny Southern places like Atlanta or Raleigh. Small-time landlords still dominate the single-family-rental landscape, but these aren’t your mom and pop’s “mom-and-pops.” For one, the industry is vastly more transparent than it was in the early 2000s. If you want to see what comparable homes in your neighborhood are renting for, you can scroll through Zillow or visit the website of one of the institutional investors, such as Tricon Residential, Pretium, or Invitation Homes, all of which publicly list their properties and their asking rents. If even that sounds like too much work, companies including Buildium and Roofstock, known mostly for servicing the largest investors in the space, stand at the ready to offer property management and pricing advice — for a fee, of course.

“I think it all comes down to transparency and availability of information,” Rick Palacios Jr., the director of research at John Burns, told me. “If you were to think about the single-family space today versus 10 years ago, 15 years ago, it’s like night and day, just in terms of the availability of information that’s out there.”

When everyone was scrambling for their piece of the suburbs during the pandemic, mom-and-pop landlords pounced, using these newfound tools to collect more cash. The median rent for single-family homes soared by double-digit percentages in both 2021 and 2022, according to the property-data firm CoreLogic, peaking at a nearly 14% annual increase.

“I think there’s this narrative that it’s only institutional landlords or investors that push up rents, jack rents,” Palacios told me. “And that’s absolutely not the case.”

Data on small landlords’ behavior is notoriously scarce, but the latest John Burns figures show that in cities with little to no institutional presence, the smaller landlords are the ones cranking up the pressure. Chattanooga, Tennessee, for instance, has practically zero homes owned by institutional landlords but one of the country’s highest rates of rent growth for single-family homes, with the typical asking rent for new leases up 10% in April from a year prior. Institutional investors own less than 1% of single-family rentals in Grand Rapids, Michigan, but asking rents there were up 8% year over year. In a similar vein, corporate owners may face the most scrutiny over evictions, but mom-and-pop rental owners are more likely to illegally evict their tenants, advocates for both landlords and tenants told B-17 as part of a wide-ranging investigation into so-called “lockouts.”

Mom-and-pop landlords may not be required to detail their operations in quarterly calls with stock analysts, but most experts I spoke with agreed that even those who own just a handful of properties are getting more with the times.

“Mom-and-pop investors are very savvy, very much in tune with what’s happening,” Jordan Kavana, the founder and chair of Ark Homes for Rent, told me.

They also represent a huge opportunity for software companies and property-management firms to expand beyond their primary clients — deep-pocketed corporations — and target the vast number of smaller players. “It’s a massive market,” Rich Ford, a cofounder of Vesta Ventures, a venture-capital firm with a heavy focus on the single-family-rental industry, told me. The firm has made investments in property-management-software companies like Hemlane, which offers à la carte property-management services for small-time landlords, and Second Nature, which started out by delivering air filters to rental homes but now helps landlords offer “resident benefit packages” that include things like renters insurance, move-in concierge, and avenues for tenants to build credit through their rent payments.

Startups like Second Nature typically target the biggest players first — a single client can deploy the technology at tens of thousands of homes — but “as you fine-tune your product, bring its cost down, etc., now you’ve got the ability to spill into the mom-and-pop area,” Ford said. Hemlane, on the other hand, has always focused on smaller owners. The company, which estimates only one-fourth of single-family-rental landlords use professional management services, now manages more than 28,000 rentals on behalf of small landlords.

“Those groups are able to do things for those individual investors, landlords, in a way that — I think you could make a pretty strong case — kind of mirrors how institutions are managing their properties,” Palacios told me.

The day-to-day life of a landlord is filled with a million questions: Am I paying too much for insurance? Do I really need to shell out that much for an electrical repair? In the past, small landlords might compare notes, but it was an inexact science. Now companies like Stessa, which offers a platform for landlords to manage everything from rent collection to bookkeeping, can gather all those data points from a wide range of investors and pass them down to the little guys. Individual landlords can look across their local markets, or even around the country, and understand how they stack up against their competitors.

“That’s something that institutions have been able to do for a long time because they have so many doors,” Devin Redmond, a marketing executive at Stessa, told me. “And that’s something that mom-and-pop landlords would go to their local meetup and they chat with people, and they might get five or six data points.”

There will always be some landlords who seek nothing more than a tenant who pays rent on time, doesn’t leave, and doesn’t pick up the phone to complain when something breaks down. For this subset, the onslaught of proptech companies and landlord software may seem like unnecessary money sucks. But others will recognize the need to compete with the more professionalized newcomers — the landlords, both large and small, who fix things on time, let you pay online, and, yes, raise rents accordingly.

The growing adoption of these newfangled services raises a big question: What exactly does it mean to be a mom-and-pop landlord these days? The definition has never been scientific or even widely agreed upon. Instead, it conjures a “very folksy, almost romanticized affection,” Philip Garboden, who studies housing and property ownership at the University of Chicago, told me. It’s been deployed in many contexts: You’re just as likely to hear it in a CEO’s quarterly recap as you are to hear it in a politician’s stump speech. But the truth is, the term has outlived its usefulness. As the Wall Street ethos trickles down to small rental owners, it’ll be harder and harder to tell them apart.

Various industry insiders I spoke with offered alternatives like “small operator” or “retail investor” to describe the amateur landlord. None of these is nearly as evocative as “mom-and-pop,” but maybe it doesn’t matter. Rather than judging landlords by their portfolio sizes or corporate structures, Garboden said, we should pay attention to their behaviors.

“We should really be concerned about management practices, fair housing, maintenance, all those types of things, and not be using these other things,” — whether a landlord is large or small — “as proxies for those behaviors,” Garboden told me.

Some of the tools favored by big-time landlords may always be out of reach for smaller investors. Individuals may also be more hesitant to raise rents in line with institutional players since a vacancy for a month or two is much more costly when you have a couple houses than when you have 10,000. But the gap is narrowing as small rental owners capitalize on the innovations that the institutional class has already embraced.

Daniel, the landlord in Atlanta, told me he now coaches his friends on how to maximize their cash flow from investment properties. His arrangement with Roofstock, the company that manages his properties, frees him up to spend more time sourcing deals. Even when he owned only one home, he told me, he didn’t subscribe to the mom-and-pop mindset. He aimed to make decisions based on data and his local knowledge, not gut feeling. And he wanted to grow.

“I want to be big, but I’m not big yet,” Daniel told me. “So I will look at the big guys and say, ‘How are these guys so successful?’ And I learn from them.”