You may be sick of hearing it, but it’s a great time to be a landlord. The statistics keep rolling in, and they’re all pointing in the same profitable direction – rental housing supply is low, and demand is high. The latest confirmation of this landlord bonanza is Rent.com's 2015 Rental Market Report.
The report reflects a survey of 500 property managers, accounting for thousands of rental properties and hundreds of thousands of individual rental units. This year marks the report’s seventh year.
So do you fit the profile of today’s highly successful landlords? If you’re anything like the property managers surveyed in the report (and you probably are), then you’ve no doubt been able to cash in on the hot rental market. A note of caution: the following trends are not tips, or necessarily smart business practices, but we also include a tip alongside each trend.
You are representative of other US landlords if:
1. You’ve raised your rent. According to the report, 88 percent of property managers raised the rent in the past year. This confirms US Census Bureau data, which reveals that the median asking rent continues to steadily climb. The current average of $802 is up from $756 in 2014 and nearly double what it was 20 years ago. It looks like this trend will continue: 68 percent of those surveyed expect rental rates to increase by 8 percent next year.
Tip: Your rent should remain appropriate for your property in your market, so find out what the going rate for similar properties is before you raise it. If you are going to raise it, make sure you abide by the notice requirements of the lease agreement and give an appropriate increase of rent notice to your tenant about the increase.
2. You’ve experienced fewer vacancies. Although the US Census Bureau reports that rental vacancy rates inched upwards a half of a percent to 7.3 percent in the third quarter of 2015, they’re also down slightly from where they were a year ago. Vacancy rates overall have continued on a downward trend for the past five years. In fact, you’d have to go back to 1989 to find the same 6.8 vacancy rate experienced in the second quarter of this year.
Tip: Not every area is experiencing the same growth, so your experiences may differ. Rental units in the western part of the United States, for example, had a 5.2 percent vacancy rate in the third quarter 2015. By contrast, properties in the Southeast had a rate of 9.3 percent. If you’re having difficulty filling your units, you may need to step up your marketing efforts and make updates in order to appeal to the renters in your area.
3. You’re renting to a millennial. This stands to reason given that millennials made up one-third of the US population in 2013. However, the financial challenges facing millennials, including student loan debt, a tough entry-level job market and tighter mortgage lending have all contributed to millennials making up a large chunk of the renter population. According to a 2015 Urban Land Institute study, only 37 percent of millennials own their own homes. The result is that nearly half (45 percent) of property managers from Rent.com’s survey reported having noticed an increase in millennial renters.
Tip: Not only are millennials a large pool of renters, they’re also renting longer than other cohorts. Failing to meet their needs when it comes to rental properties can cost you in the long term. Marketing your property to millennials and providing the amenities they want (open floor plans, large kitchens and closets, access to technology) can stand you in good stead for the long haul, even if the pendulum swings toward homeownership again.
4. You’re getting your current renters to stick around. It’s hardly surprising that with low availability and high demand, renters are reluctant to give up their spaces. Thirty-four percent of property managers reported that their renters are opting to renew their lease agreements, up from 29 percent just a year ago. Although keeping a current renter might be easier than trying to find someone new, many property managers don’t care. The survey revealed that 53 percent of them are willing to forego renewing a contract in favor of bringing in a new tenant at a higher rate.
Tip: These days finding a new renter, one who won’t bat an eye at your new, higher rental rates, may seem easy. But vacancies are both time-consuming and expensive, and include the risk of signing a lease with a bad tenant. If you have a good relationship with your current tenant, it’s almost always more profitable to accept slightly lower-than-market rent to keep a stable, consistently good tenant.
5. You’re not being more selective in choosing your renters. With rent demand soaring, you might expect that landlords are being pickier in selecting and screening tenants. The Rent.com survey, however, suggests otherwise. Fifty-six percent of property managers said they haven’t become choosier despite the high demand for rental properties. In fact, only 17 percent reported that they’re more selective. Perhaps the glut of available tenants have made landlords lazy, and unwilling to properly screen tenants for high credit scores, high income-to-rent ratios and excellent rental histories.
Tip: Tenant screening is always a good idea. The overall upward swing in rents has meant financial strain on some tenants, so making sure applicants are financially capable of paying is more important than ever. Start by having potential tenants complete a rental application. You can then conduct a comprehensive background check by using a tenant screening service that includes a full credit report and criminal background check.
6. You’re sticking with the game plan. Because property managers aren’t struggling to fill their properties, 64 percent of them say they’re not doing anything differently than a year ago to keep them filled. However, over half of them (54 percent) have changed one thing – they’re less willing to lower the rent or offer other concessions just to fill a vacancy. With renters lining up at the door, they don’t have to.
Tip: It’s tempting to take it easy when rental properties seem to be filling themselves. Complacency, however, is a dangerous habit. Consider that some of the world’s biggest brands – Disney, Verizon, General Motors – are also some of the biggest spenders on advertising and research. They’re industry leaders and want to make sure they stay that way. While you may not need to invest heavily in marketing if your vacancy rate is low, you can definitely keep your rental property well maintained and work to foster tenant relationships to keep your profits aloft. Even with rental properties, it’s easier to stay on top than to have to climb your way back up if the current market takes a tumble.