The Most Important Asset

By Kevin Cloyd

Different strokes

The Most Important Asset

The implications of the evolving REO-to-rental market for field service firms

While the REO-to-rental asset class continues to evolve and contribute to the recovery of the housing industry, what are the implications for mortgage field services in this growth market?

Field services companies - also commonly referred to as property preservation firms-work to ensure distressed and abandoned properties are secure and maintained, assist with the upkeep of affected neighborhoods and help position properties back on the market for sale. Traditional property preservation services include securing a property (changing locks, boarding up damaged structures), debris removal, property maintenance (winterizing, cutting grass, repairing or “tarping” roof leaks) and rehabilitation. So successful property preservation firms add value by providing quality work, both to satisfy property upkeep laws and to preserve and prepare properties for sale.

But what about the services that go beyond the traditional scope of property preservation - often referred to as "rent-ready repairs" in the REO-to-rental space - such as the installation of appliances, flooring, new paint and any electrical and plumbing maintenance or upgrades? There's also a deconstruction component required in some homes that doesn't often fall under the traditional services umbrella, including the removal of lead-based paint, asbestos and mold.

A major challenge for many property preservation businesses will be prompt access to the capital and staff resources required to support an REO-to-rental business.

The REO-to-rental business requires an entirely different approach to managing properties than traditional property preservation services. This particular growth market requires the unique ability to be able to address, in a customized manner, the full spectrum of what investors are looking for in order to take advantage of this market opportunity.

This new asset class has created a demand for a higher level of quality repairs and property management in order to maximize rental return and investment strategies. The concept of "choices" in field services in the REO-to-rental market is emerging. And there are some core fundamentals to consider in meeting this growing demand in addition to offering services that go beyond traditional capabilities.

First and foremost, making sure the right professionals are hired is critical in providing quality property preservation and repair services. Using skilled craftsmen versus general contractors can make or break the end result. Some questions to consider when evaluating professionals include: Are they insured, bonded and licensed? Do they possess the know-how and experience required for the job?

Also, determining the direction or scope of repairs required should be a primary focus in successfully managing properties. There's a range of fulfillment options depending on an investor's specific model. Do you go with a "ash-and-dash" job, using the cheapest paint or carpet? Or, do you make more substantial repairs and include upgrades such as granite countertops, stainless steel appliances and hardwood flooring, knowing that these elements are more likely to attract interest and generate higher rent?

The REO-to-rental business requires an entirely different approach to managing properties than traditional property preservation services.

Another new choice in the REO-to-rental market is the option of offering clients a warranty. Will long-term repairs hold up in order to attract a sale? What is the view on property maintenance and upkeep?

Delivering a different set of services for REO-to-rental work is essential. Tenants have different service expectations than typical distressed property owners. Response time needs to be measured in minutes or hours - not days or weeks. Many property preservation firms will face certain challenges in changing their business models and delivering these services successfully.

A major challenge for many property preservation businesses will be prompt access to the capital and staff resources required to support an REO-to-rental business. Having the ability to access the required funds for an extended period is crucial if costs are not prepaid or reimbursed on a percentage of completion basis. Equally important is having the ability to staff up or down using licensed specialists depending on the particular job's requirements.

Finally, it's important to note that the REO-to-rental client base requires a significant amount of accountability and transparency. The reporting, responsiveness and added responsibility may be a challenge for some eld services companies, particularly those without the kind of technology solutions needed to manage and monitor multiple or large property portfolios.

The REO-to-rental space offers field services companies an intriguing opportunity to broaden their business and begin a transition from the distressed market into more traditional real estate. But capturing this new business requires fundamental changes to the property preservation model - the services themselves, the quality, their delivery and the financial and technology requirements that provide a foundation for success. For firms that understand investor needs and can deliver construction expertise, professionalism, responsiveness and dependability, the REO-to-rental market may be the next step in their -our industry's- evolution.


This article is from the June's 2013 issue of HousingWire.

Kevin Cloyd is president of Carrington Home Solutions, a national property preservation services company formerly known as White Van Real Estate Services.