Small Landlords Are Still Buying - but Rising Equity Is Quietly Diluting Their Returns

Small landlords have held up better than the market around them. Larger investors have pulled back from single-family housing over the past few years, but owners with fewer than 10 purchases have kept buying. According to Realtor.com, they accounted for about 63% of investor home purchases in 2025, the highest concentration in more than 15 years. They remained net buyers by roughly 53,000 properties while larger operators sold.

Continuing to buy is not the same as knowing whether existing holdings still justify the capital tied up in them, and that question has become harder for small owners to answer. Home values climbed sharply in the early 2020s and built large equity positions. Mortgage holders overall held a record $18 trillion in equity in the second quarter of 2026, according to ICE. Rents, meanwhile, have barely moved. Cotality’s single-family rent index rose 1.8% year over year in July 2026, after annual growth fell to near 15-year lows at the end of 2025. Operating costs, led by insurance, have risen far faster.

Together, those trends mean the return an owner earns on today’s equity can be far lower than the return on the original investment. The standard reports most small landlords receive aren’t built to show that gap.

The Calculation Most Investors Never Run

Return on equity measures what a property earns relative to the capital currently committed to it, not the capital originally put in. The distinction matters most after a long run of appreciation, when the two numbers can diverge sharply.

Ron Phillips, founder of Lineage, a rental investment platform that also works with property management companies, describes a typical case. An investor who put $100,000 into a property years ago may now be sitting on $500,000 in equity. Rents haven’t risen in proportion to the property’s value, and expenses have climbed. Measured against the original $100,000, the property still looks like a sound investment. Measured against the $500,000 now tied up in it, the return may be a fraction of what it once was. “Nobody does that calculation,” Phillips says. “And it’s really unfortunate.”

An owner who does run the number faces a real decision. Equity earning a thin return could be left in place, or it could be redeployed through a refinance, a sale, or an exchange into another property. An owner who never runs it doesn’t know the decision exists.

Why the Numbers Stay Hidden

The calculation goes unrun largely because its inputs are scattered. For small landlords who use professional management, the main financial report is usually a profit-and-loss statement. According to Phillips, even that is incomplete. The management company only has the numbers it has, he says, and owners pay other expenses outside that system. Unless owners track those costs separately, they don’t know what their properties actually return. A P&L also says nothing about a property’s current value, the principal paid down on its mortgage, or the owner’s equity position. Those are the figures a return-on-equity calculation requires.

Phillips sees the missing information as the main thing holding back owners who might otherwise expand. “When those two things are overcome – a lack of knowledge and a lack of transparency – people get excited about investing in real estate again,” he says.

Management companies have little room to fill the gap. Their days are consumed by maintenance requests, tenant issues and upkeep, and according to Phillips, financial outreach to owners rarely makes the list. “They don’t do any of the proactive outreach, and because they don’t, their people remain stagnant,” he says. In practice, owners who might add properties stay where they are.

Lineage is one of several platforms aimed at giving small owners a fuller view of their portfolios, but the underlying need doesn’t depend on any particular tool. An owner who can’t see current value and equity has no way to judge whether that capital is still working.

Insurance Has Outpaced Rents

Of the costs wearing down that return, insurance has moved the most. Estimates vary by data source, but average homeowners’ premiums, which cover most one- to four-unit rentals, have risen roughly 25% to 45% over the past four-plus years. Texas has been among the steepest markets. One lender’s analysis of S&P Global data found a cumulative increase of about 60% in the five years through 2023. Phillips notes that the effects travel: when a major insurer takes a large loss in one state, rate increases can ripple across its entire national book of business.

Some relief has arrived in the markets hit hardest. Florida has begun to ease, with dozens of carriers filing for rate decreases this year. But premiums that stabilize do so from a much higher base. With rent growth in the low single digits, owners can’t count on rents to close that gap.

Rates in Historical Context

Financing is the other cost that determines whether a next acquisition pencils out, and it has moved against buyers this fall. The average 30-year fixed rate reached 7.28% on October 1, according to Freddie Mac. That was up from 6.34% a year earlier, and it came a week after rates crossed 7% for the first time since January 2025.

Phillips takes a longer view. “I don’t think that we have high interest rates right now. I think the interest rates are just normal,” he says. He paid 8.25% on his first property, and his parents considered that a bargain after buying in the early 1980s, when 30-year rates topped 18%. He expects rates to settle in a range from the low-to-mid sixes on the low end to around 7.5% to 8% on the high end. Today’s average falls inside that range. “I think this is the new normal and we all need to kind of get used to it,” he says.

If that view is right, waiting for lower rates is not a strategy. The more useful question for an owner is whether a deal works at current rates, and that is easier to answer once the owner knows what existing properties are earning.

Where Builders Have Changed the Math

Higher rates have also shifted leverage toward buyers in one segment: new construction. Builders carrying inventory are leaning heavily on concessions. In September, 66% of builders used sales incentives, the highest share since December, and 38% cut prices, by an average of 6%, according to the National Association of Home Builders. Large national builders in particular are offering rate buydowns and forward commitments, in which they secure financing at lower rates for specific communities, Phillips says. Those terms can materially change a deal’s cash flow.

Resale sellers, by contrast, often remain anchored to prices from two or three years ago, which makes negotiation harder. “Builders are all about numbers,” Phillips says. “They just need to move property.”

New builds also tend to attract higher-rent, longer-tenure tenants with fewer reasons to leave, according to Phillips. The tradeoff, he says, is a lower cash-on-cash return than a renovated property typically delivers. For owners with limited time, the lighter maintenance load and warranty coverage can offset that gap.

For small landlords weighing a purchase like that, the clearest starting point may be a property they already own. Small owners now account for most investor buying in single-family housing, at a time of flat rents, higher insurance, and rates back above 7%. Whether they keep expanding will depend less on the next listing than on whether they know what their existing equity is earning.

About the Expert: Ron Phillips is the founder of Lineage, a technology platform and marketplace serving rental property investors.

This article is based on information provided by the expert source cited above. It is intended for general informational purposes only and does not constitute legal, financial, or real estate advice. Readers should conduct their own research and consult qualified professionals before making any real estate or financial decisions.