Single Family Rental Portfolios Are Selling at 25% Discounts to Retail Pricing

Written by:

Steve Marcinuk

Date:

19 Jan 2026

Share

Share via Facebook

Share via Linkedin

Share via X

Copy to clipboard

Mom-and-pop landlords who built up portfolios of single-family rental homes over decades are discovering their properties are worth far less than anticipated, as institutional buyers focus on income streams rather than individual home values.

Tom Johnston, Executive Director of the WP Carey Center for Real Estate and Finance at Arizona State University, says the single-family rental market is experiencing a significant valuation mismatch. Johnston, who has sold over 2,000 rental homes in packages of five to 450 across 20 states, sees a growing gulf between what small-scale landlords expect and what institutional buyers are willing to pay. “They want retail pricing on each of these homes,” Johnston says. “What they fail to realize is that they’ve created an investment vehicle. Someone’s buying their income stream.”

This disconnect has widened to the point where portfolios are trading at discounts of 25% or more below what an owner-occupant would pay for the same homes.

Deferred Maintenance Drives Down Value

The valuation gap stems largely from how individual landlords have managed their properties. “The average operator isn’t very sophisticated,” Johnston says. “They’ve bought homes one at a time and paid a good price, but they haven’t kept up with capital improvements—roofs, water heaters, foundations, the things inspectors focus on.”

Institutional buyers, when evaluating a portfolio of 10, 15, or 20 homes, calculate the capital needed to bring properties up to standard. “To buy that income stream, they’re going to have to invest in roofs, mechanical systems, windows, doors, carpeting, tile, refrigerators, dishwashers. There’s a cost to that,” Johnston explains. “So they’re shocked they’re not getting $200,000 for this home when they’re only getting $150.”

Inspections reveal the accumulated cost of deferred maintenance, which many small operators either could not afford or chose not to address. Johnston notes that some landlords avoid making upgrades to keep tenants in place, fearing that turnover would require costly renovations. “The next tenant is going to want new floors, a roof that doesn’t leak, and fresh appliances. That all costs money, and a lot of these operators don’t want to do that.”

Self-Management and Stagnant Rents Compound Discounts

Beyond property condition, another factor further depresses valuations: self-management and below-market rents. “A lot of them self-manage these homes and have had the same tenants for years without ever raising rents,” Johnston says. “So they’re really not doing themselves a service.”

By keeping rents low to avoid turnover, landlords reduce the income stream that institutional buyers are purchasing. When portfolios are evaluated on a cap rate basis—the standard for institutional investors—those with below-market rents and deferred maintenance sell at steep discounts.

Larger operators, Johnston notes, have clear advantages. “Progress Residential and other property management companies have economies of scale—they can manage these assets far more efficiently and cost-effectively than you or I could if we owned 10 homes,” he says.

Institutional buyers can systematically address deferred maintenance, implement consistent rent increases, and leverage vendor relationships unavailable to individual owners. This operational efficiency, combined with stricter underwriting, further widens the gap between seller expectations and actual offers.

Market Outlook: More Price Adjustments Ahead

Johnston does not expect the valuation gap to close soon. “Prices have got to a point where the sellers want retail pricing, and investors are going to pay them a lot less based on the income stream that they’re getting,” he says. “I think it’s going to be a challenge for the next 24 months.”

He predicts that some markets will see sharper adjustments than others. “I think we’re going to have some price adjustments in certain markets, certainly Phoenix,” he says, though he does not foresee a repeat of the deep value declines seen during the Great Recession. “I don’t think we’re going to see the huge drops in values that we saw from 2009 to 2015, but there’s going to be some price adjustments.”

The rental market itself has also weakened. “Traditionally, single-family rental rents don’t go down, even in a soft market,” Johnston notes. “At most they flatten, but they’ve gone down.” This decline in rents has surprised many landlords and further reduced the income streams institutional buyers are evaluating.

Built-for-Rent Communities Gain Favor

Amid these challenges, Johnston points to purpose-built rental communities as a clear beneficiary. “Where there’s value is in the built-for-rent community, where they’re actually building communities that are for rent,” he says. “Once those are stabilized, they can be treated as a multifamily asset, or they can put agency debt on it, apartment debt, which is going to be more cost-effective than just a traditional conventional loan.”

Built-for-rent communities solve several problems that plague scattered single-family portfolios. “The assets are all in one community, so the efficiency for managing and maintaining is better,” Johnston explains. “They’re newer homes, so they’re built with durable finishes, and they’re going to last a little bit longer.”

The financing advantage is significant. Agency debt, available for multifamily properties through Fannie Mae and Freddie Mac, typically offers lower rates and better terms than conventional mortgages on individual homes. For institutional investors, this financing difference can make built-for-rent communities much more attractive than acquiring scattered portfolios from individual operators.

Whether the valuation gap narrows or widens over the next two years will depend on how quickly individual operators adjust their pricing expectations to align with the income-based realities institutional buyers apply. For now, portfolios built up over decades are being repriced overnight, forcing a new reckoning for small landlords in a market that now values scale, efficiency, and stable income above all else.