Installing smart home technology in rental properties is a good investment because it offers a significant return by increasing revenue, reducing costs, and boosting property valuation. The financial benefits extend beyond simple rent increases, encompassing operational savings and risk mitigation that can greatly improve a property’s Net Operating Income (NOI) and overall profitability. The market is rapidly expanding, with both renters and institutional investors recognizing the value of these amenities, making it a critical time for property owners to adopt this technology.
The Financial Upside of Smart Home Technology
The financial benefits of smart home technology can be categorized into three key areas: revenue generation, operating expenses (OpEx) savings, and risk mitigation.
Revenue Generation
One of the most immediate benefits is the ability to charge higher rent premiums. Data from Rently shows that 65% of renters are willing to pay extra for smart features. The potential rent lift can range from $25 to over $100 per unit per month. A Zillow analysis found this can translate to a 4.4% lift versus comparable properties. For a 200-unit property in a suburban area, a premium of +$45 per unit is achievable. In a 300-unit CBD high-rise, that premium can jump to +$75.
Beyond base rent, smart home technology can also generate a predictable stream of ancillary income through amenity fees. This adds to a property’s revenue, which directly increases its NOI and, consequently, its valuation. The increase in NOI can also lead to cap-rate compression, further boosting the property’s value.
Furthermore, smart amenities are a strong signal for lease extensions and renewals. They rank among the top three reasons residents renew their leases, according to a survey by NMHC and Grace Hill. A higher renewal rate reduces turnover costs and minimizes vacancy loss, contributing to a more stable and profitable asset.
Operating Expense Savings
Smart home technology is a powerful tool for reducing a property’s OpEx, which directly increases NOI. The efficiency gains come in a variety of areas:
- Self-Guided Tours: Smart locks and hubs enable potential renters to tour properties on their own, which can cut leasing labor by 30-50 hours per month per site. This was a “game-changer” for Bridge Homes, which manages 4,700 scattered single-family rental homes. By offering self-guided tours with Rently, they saw a 41.5% lead-to-tour conversion rate and an average of 11-12 tours per property per month.
- Remote Access: The ability to remotely lock and unlock doors can avoid about two maintenance truck rolls per week per unit stack. This saves on fuel, vehicle wear and tear, and staff time.
- Preventative Maintenance: Devices like water-leak sensors can alert staff to issues before they become major problems. This proactive approach helps avoid expensive repairs and work orders.
- Energy Management: Smart thermostats help manage energy consumption, which is especially important with growing ESG (Environmental, Social, and Governance) and energy mandates. This can lead to significant savings on utility costs.
The reduction in staff hours and avoided work orders are key metrics to underwrite when evaluating the return on investment of these technologies.
Risk Mitigation
Smart home technology also acts as a form of risk-mitigation or loss prevention. By installing devices that can detect potential hazards, property owners can protect their assets and reduce insurance costs. Water-leak sensors, for instance, can help reduce the average claim cost by $10,000. This not only saves money on a single claim but can also lead to insurance discounts and lower premiums over time. By preventing costly incidents, owners are protecting their investment from physical damage and liability, which is a key component of a robust underwriting process.
The Underwriting Process for Smart Home Tech
To truly capture the value of smart home technology, the underwriting process must evolve to include both the direct revenue and the expected value of operating savings and avoided losses.
Components to Underwrite
- CapEx (Capital Expenditures): This includes the cost of devices like locks, hubs, thermostats, and sensors, as well as installation labor and networking infrastructure. These costs should be amortized over 5-7 years. Key metrics to track are the cost per door installed.
- OpEx (Operating Expenses): Underwriting should account for the savings from self-guided tours, leak alerts, and reduced staff time.
- Revenue: This includes rent premiums, amenity fees, and increased renewals. Key metrics are the average revenue per unit per month and the renewal percentage.
The financial model should project the cumulative cash inflow and OpEx over several years to determine the payback point, ROI, and IRR. A Rently model, for example, shows a payback point in as little as 8 months (0.67 years), with a five-year cumulative ROI of 781.0% and an unlevered IRR of 31.8%.
Case Studies in Success
Real-world examples demonstrate the positive financial impact of integrating smart home technology.
Greystar’s Rye Charlotte Ave: This asset of 261 Class A units in Tennessee installed smart locks and an access panel with an intercom. The financial wins included reduced delivery bottlenecks and resident satisfaction scores of over 90%.
Rently’s newest access control device is by far the most user-friendly and most versatile product on the market—I love it!
– Gavin Haats, Assistant Community Manager, Rye Charlotte Ave
Bridge Homes: This company manages 4,700 single-family rental (SFR) homes across 10 states. By implementing smart locks and hubs for self-guided tours, they found a great solution for managing showings across scattered sites, which can be logistically challenging. The results were impressive, with a 41.5% lead-to-tour conversion and an average of 11-12 tours per property per month.
The Rently self-showing system that we use predominantly has really been a game-changer… When you have scattered sites like single family rentals, it makes it very difficult to schedule showings… Rently provided a great solution for self-entry where people can go into the home themselves.
– Scott Couch, Vice President of Continuous Improvement
These case studies illustrate that smart technology provides tangible financial returns, whether the portfolio is a multifamily community or a scattered single-family home portfolio.
Why Now is the Time to Invest
The smart home market in the U.S. is booming, projected to triple from $33 billion in 2025 to $99 billion by 2032. This growth is driven by several macro trends:
- Renter Expectations: Renters are increasingly expecting smart features. Smart amenities rank among the top three reasons residents choose to renew their leases.
- Institutional Demand: Institutional investors are now specifically requesting a “tech-readiness” line item in pro-formas when evaluating properties.
- Widespread Adoption: Over 15 of the top 20 multifamily operators in the U.S. have already deployed enterprise-grade smart platforms.
By incorporating smart home technology, you’re not just upgrading a property; you’re future-proofing your portfolio. It’s about shifting the perception of this technology from a simple expense to a profit center that attracts and retains residents while improving the financial performance of your assets.
Strategic Implementation for Maximum ROI
To ensure a successful investment, property owners should take several actionable steps:
- Audit Existing Infrastructure: Before installing new technology, assess existing locks, wiring, and Wi-Fi backhaul to ensure a seamless integration.
- Prioritize Key Devices: Focus on devices that offer the greatest financial return, such as locks, thermostats, and leak sensors.
- Leverage Incentives: Take advantage of available utility rebates, insurance discounts, and green-bond financing to offset initial costs.
- Model ROI Conservatively: Use conservative estimates for rent premiums (e.g., +$25) and staff-hour benchmarks when building your financial model.
- Pilot and Measure: Start with a pilot program, track key metrics like rent lift, renewal rates, and service tickets, and then expand based on proven results.
- Communicate Wins: Share the positive results with investors and residents to build confidence and attract new tenants.
By following these steps, property owners can ensure that smart home technology becomes a profit center rather than just a line item expense. The market opportunity is immense, and institutional investors are already asking for “tech-readiness”. This is the time to make smart home technology a core part of your investment strategy.
