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Though mortgage rates and home prices have gobbled up all the attention lately, the last year has been a wild time in the rental space as well.
Through the COVID-19 pandemic and into the spring, rents were rising at a record rate. But then, the slowing economy and souring housing market put the kibosh on that, and more recent headlines have highlighted ever-slowing growth in the rental market.
Which is to say, it’s been a wild ride. And that’s doubly true for the real estate technology firms that arose in recent years to service the sector.
Michael Lucarelli co-founded RentSpree back in 2016, and today the company offers tools, such as rental applications and tenant screening. Despite the slowing market, RentSpree also pulled off a successful funding round late this summer and earlier this month teamed up with the California Association of Realtors on a new training program.
Lucarelli will appear on stage next month at Inman Connect New York, where he’ll discuss the intersection of the rental market and technology, among other topics. In the lead-up to the event, he sat down with Inman to discuss what the last year has looked like and what to expect in 2023. And a major takeaway from the conversation was that Lucarelli advised real estate pros to look at rentals as a way to diversify their income in a tougher time.
What follows is a version of that conversation that has been edited for length and clarity.
Inman: Let’s talk first about 2022. What has this year looked like for you guys?
Lucarelli: What we saw at the beginning from the rental perspective was continued growth in rental activity, so a continuation of 2021 into 2022. But overall we saw not a lot of willingness of agents to sort of dive in and start working on rental transactions earlier on in the year. Because there was some residual bounty, maybe you’d call it, from the year prior in terms of for-sale transactions that were basically just going off like clockwork.
You say bounty, but as that bounty disappeared did you see agents shift? Did you see them become more interested in the rental market?
I think you did. And I think it wasn’t so immediate because there was a little bit of a shock period when the very active for-sale market started to dry up. That’s when we started to see a lot of pivoting and a lot of the large organizational changes happening.
What we’re seeing now is that in the aftermath of those jarring actions is renewed interest to look at ways to diversify. I think “hedge” is kind of the word to look at when we talk about the market and how income can be diversified. And people are now looking at rentals more so as a compelling way to grow business.
For the agents who are gravitating toward rentals, what’s the focus? What types of things are the agents doing in the rental market?
As we’re seeing rent prices increase over time, that’s making it more appealing for agents in many areas to be more open to working with renters and helping them, because there’s more commission available. In the past it was more regional, where only in certain areas where the rent prices were high enough would you see agents representing on the buy side or the renter side. So if you were to look at markets like Miami, it’s a lot more common to see agents who are helping renters secure properties.
I think in other areas that are maybe more typical across the country, you’ll be more likely to see agents working on the sell side, so assisting landlords to find and secure tenants.
You mentioned Miami. Also in New York, it’s common for agents to be involved with renters. But in places like L.A., I’ve never met someone who used an agent to find a rental. Is that changing? Are we going to see more renters’ agents in places like that?
It is changing.
Sort of the higher the rent prices go, the higher the stakes are for everyone. And that’s when agents come into play in terms of there being more compensation available for them. There’s just more money on the line. If you’re paying $900 for rent it’s not as big of a deal. But when it comes to larger dollar amounts, it makes more sense from that perspective.
You also mentioned rentals as a hedge in a slowing market. But how much of a hedge is it right now, and where do you see rental prices going in the near future?
Rent prices have definitely taken a little bit of a dip for the first time. From October to November they dipped, just a little bit.
But let’s say it’s unlikely that for-sale prices are just going to tank across the board. I think it’s equally unlikely, if not more unlikely, that rent prices are going to tank. So I don’t think you’re going to see some crazy reshuffling with rent prices just dropping all of a sudden. We did see a slight decrease from October to November, but overall rent prices are still pretty high.
When I use the word hedge, I’m talking about it more so from an agent’s perspective. You need to be earning income, and rental activity is still going to go on. You still need to make ends meet, and rentals can fill in the gap.
As expensive as rent prices are, it’s still far more affordable for the majority of people to pay that very high rent price compared to now when you look at mortgage rates and the cost to purchase a home, which is still so high.
What I think is more important when we talk about a hedge is this is going to set you up to come out of this in a more successful position. Because if you’re smart about it and you’re helping these renters, now you have all these relationships with all of these renters. Agents who work with rentals now, they’ve positioned themselves to help renters with transactions. You’ll be in most cases the only agent those renters know.