Competition is an important force in our economy, but we all recognize that it’s not always a fair fight. Small business owners going up against big heavy-hitter players in the market simply don’t stand a chance. And that’s when we hear many of them resign and simply say, “Well, if you can’t beat them, join them!”
No industry is immune to the threat of big players, and increasingly those big players are tech companies and private equity firms . Within the property management space, we too are susceptible to the growing threat of tech players entering the market.
A short history of rental property advertising
Pre-internet, property management companies and landlords had to take out ads in the newspaper and pay to list their rental properties. This was simply part of the deal if you wanted to advertise your property – you had to pay for it.
Then along came an explosion in technology, and the internet became the go-to place to advertise rental units. What’s more, Zillow made this free to landlords. For nearly a decade, property owners and property management companies could advertise their listings on Zillow without paying a dime.
While this sounds unheard of to the prior generation who paid for print, it became very common and customary for this new generation entering the business to have a free space to advertise.
That all changed recently when Zillow started to charge again for rental listings. Now a company like ours at RL Property Management pays about $450 a month to Zillow to have our rental listings published.
Friend or foe?
Through advertising, Zillow has become an important tool for companies like ours. In fact, a large percentage of traffic to our website from people looking to rent our units – comes from Zillow and affiliated companies. In this way, they are a strong partner for us and a company we utilize to help find good tenants for our clients.
We see ourselves as their customers….but are we?
Recently Zillow came out with its own rental manager platform. They’ve billed the product as one that provides tenant screening, manages the application process, collects rent, and more, all in an attempt to make it easier for property owners to manage the property themselves.
At issue, however, is that Zillow has now directly positioned itself as a competitor to businesses like ours, who historically have been their customers.
A lot of the people looking at Zillow and using their platform to advertise rentals directly, take rental applications, and collect rent are the people who, in theory, would be using a property management company instead of going to Zillow directly. And it’s not just Zillow. Places like Apartments.com are also doing very similar things.
Where to next?
It’s not to say that there isn’t room in the marketplace for more traditional property management companies to coexist with the likes of Zillow’s platform – it doesn’t seem likely Zillow will ever be able to scale to the point of handling emergency calls in the middle of the night for its clients.
But, as a small business, it’s important to understand how the market is shifting.
Similarly, it’s important for all residential real estate investors to understand how institutional investors are changing the real estate landscape.
From what we’ve seen over the past few years, large institutional investors are making a big move into building residential real estate portfolios. For properties of a specific size, all of a sudden you aren’t just competing against other local investors – a good-sized opportunity in Columbus will be attracting interest from investors from New York to California.
And while this is a lamentable fact – as Zillow’s goal is to compete with local property managers – it also creates opportunities.
Institutional investors do not look at deals that won’t move the needle for them – so while a 65 unit complex will draw their eye, a duplex or a 5 unit complex likely won’t.
For a savvy investor looking to build a great portfolio of smaller properties over the next few years, there is a massive opportunity to create a good portfolio of these overlooked properties that you can then turn around and sell to a large institutional investor down the road once you reach a size that gets their attention.
As we look to the future, what are some of your biggest hopes and concerns about the changing competitive landscape in real estate? Drop us a line and let us know.