A surge of single family rental (SFR) investment in 2023 saw the UK rise to the second largest global market, according to JLL. So, how can you navigate this emerging asset class?

In the final instalment in our series of short videos focusing on SFR, principal associates Danielle Klepping and Richard Thomas look at the intricacies of managing a rental property and setting up a site, as well as the challenges and key areas to consider.

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Danielle Klepping: So I think that a common challenge that housebuilders face in this market is appointing a property manager for the site and having, sort of, a single property manager run that site well.

There are obviously some really good property managers out there but they all have their own nuances and, sort of, areas of specialism and so when you get, sort of, a property manager that is maybe not the right fit or perhaps not a great relationship between the housebuilder and the property manager, you can end up with a site that is poorly managed.

You can also have challenges where there are multiple property managers, which sometimes happens where you have got more than one housebuilder investing in the development; and so what that all leads to is increased homeowner complaints, needing to spend more senior management time dealing with the property manager, and it can lead to a sort of drop off in sales and rentals because the site as a whole becomes more unattractive.

I think investors are looking for, sort of, an attractive asset where everything is set up and runs smoothly. They do not want to be pulled into day-to-day management or particularly bothered by dealing with multiple managing agents and trying to work out where to navigate their queries to.

Richard Thomas: The transparency aspect is critical now from an open market perspective because the New Homes Quality Code which brings requirements on housebuilders to ensure everything is put forward correctly and there is no hidden surprises.

There's commonality with single family rental in that investors are also looking for an attractive proposition with no surprises. The management agreement is certainly one aspect in terms of front-loading and getting things right from the start. The management agreement has got to match the service charge budget, for example.

The conveyancing plans for the site, the lease and transfers and the structuring and the contract packs for the site, so really it is all for the housebuilder to scope the site accurately and the developments accurately from the start to ensure that they have the full picture of what they are dealing with, with the intention of smooth house sales to all classes of buyer – investors and open market purchasers – with a view to efficiently exiting the strategy responsibly at the end of the development.

Danielle: I would say there are kind of three main areas that come to my mind. The first is get us involved early. It can seem at the start of these projects as though it is a bit soon to get the lawyers involved and it can seem quite early to be thinking about your management arrangements, but the earlier that you get Richard and myself involved the more that we can feed in to the estate management plans: advice on how to set up the site, how many management companies you might want to set up for a particular site, whether you need more than one managing agent because actually if you have got specialist aspects such as affordable housing you might need a provider that can deal with that and not all providers can.

It is also really important that you do your research about those property managers, make sure you have picked the right one for that site and then build a relationship with that property manager, really work on seeing this as a service that you are providing together because it will really impress those investors if you have got a streamlined service and a really good relationship with your managing agent.

And then I would wrap that up with it is really important not to neglect your template documents. Think about what documents you need and what contracts you need for not just management but also those wider relationships that we talked about with third party service providers and also sales of the units themselves. If you have got robust documents in place, you are really helping your team on the ground and your team in the office to be set up for success and to take it forward.

Read the original article on GowlingWLG.com

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