The Wall Street Journal had a recent article entitled, “America’s New Millionaire Class: Plumbers & HVAC Engineers” that is a must read for every property owner. Here is a key quote:
Private equity, however, is no foreign player in the skilled trades these days. PE firms across the country have been scooping up home services like HVAC—that is, heating, ventilation and air conditioning—as well as plumbing and electrical companies. They hope to profit by running larger, more profitable operations.
I recently wrote a post entitled, “Will Real Estate Property Rentals Be Viable In The Future?” that questioned whether rental properties would be viable for a small operator and the article above re-enforces some of the growing challenges with owning and maintaining property.
So what does private equity gobbling up trades firms mean to a property rental owner? In a nutshell scalability. A small property operators can approach several small HVAC/plumbers and get them to compete for business through the bidding process however that goes away if there are only one or two large providers in a region owned by large private equity firms.
It’s not different than the quasi monopolies between internet service providers, airlines or meat producers which have all consolidated down to two or four providers and prices have gone up.
In addition to soaring insurance premiums, the consolidation of trades workers will add an additional layer of higher expenses to a rental portfolio. All of this will take time but I won’t be surprised if 10 years from now, you’ll have to subscribe to a superscription to get guaranteed service for your rental portfolio because with so many baby boomer retiring, we will have huge labor shortages over the coming decade and there won’t be enough trades people to go around.
Share The Wealth
Have you done forecasts and analysis on your rental portfolio ecosystem lately? It’s time to take a look and see how private equity gobbling up trades will impact your portfolio.