A new study of single family and multifamily tenants by John Burns Real Estate Consulting based upon data from Fannie Mae’s American Homeownership Series fills a huge void in our understanding of single family rental tenants and how they differ from multifamily.
Especially on topics that your tenants probably will never discuss with you, the findings include more than a few “Aha” moments, a few surprises and useful insights that could help you better understand your tenants and help you manage your properties more successfully,
Here are some findings that you should know about your tenants:
- Nearly three out of four single family tenants plan to become owners.Some 69.5 percent of SFR tenants are counting the days until they can become homeowners─or become homeowners again─compared to 58.9 percent of multifamily tenants who plan to buy at some point.The survey confirmed what’s well-known about most of the differences between SFR and multifamily tenants: SFR tenants make more money (but much less than owners), they have larger families and need more space (in fact, 25 percent have more than 5 people in their households). But they aren’t much older (prevalent age range for both groups is 25-34) and, like multifamily, are more likely to live in urban than suburban neighborhoods.
- Credit, not Income, is the biggest obstacle keeping SFR tenants from buying.Considering the timeframe of the Fannie Mae data, the SFRs in the survey might have been more concentrated in heavy foreclosure markets than they are now. If so, it’s likely that a large number of those surveyed were families who had lost their homes to foreclosure and are renting until they can buy again. Unfortunately the Fannie Mae survey didn’t probe to find out how many SFR tenants are former owner/defaulters.However, there’s a clue in the report. Nearly a third, 29 percent, of SFR tenants cite their credit as the biggest obstacle they would face getting a mortgage compared to only 23 percent of multifamily tenants, even though more SFR tenants earn over $50,000 a year (25 percent of SFR tenants vs. 19 percent of multifamily tenants). Multifamily tenants, on the other hand cite income as their biggest obstacle.
Whether the problem is credit, income, debt, job security, rates, or down payment, three quarters of both single family and multifamily tenants believe it would be somewhat difficult for them to obtain a mortgage.
If you are renting to someone whose credit report reveals a foreclosures and short sale in their past, it’s useful to remember it will remain on their credit report for seven years. Chances are good they’ll be looking to buy again as soon as they can.
- The younger the tenants, the more likely they are planning to become owners.Contrary to what you might think, younger tenants, not older tenants, are more likely to leave you in order to become homeowners.Some 93 percent of single family renters under 24 and 81 percent of those age 25-34 plans on buying at some point. Among 55 to 64 year olds, only 21 percent plan on becoming owners.
The 35 -44 year age range is the sweet spot for ownership. Some 71 percent of single family tenants in that range plan to buy and the middle years are also a time when tenants are least satisfied with their renting experience.
- Multifamily tenants are more likely to anticipate rent increases. Multifamily management companies may be doing a better job preparing their tenants for rent increases than single family managers. The data, from 2010 and 2011, was collected during a period of increasing rents (see Rental Outlook 2012: The Good Times Roll on). It’s not surprising that large numbers of SFR and multifamily tenants expected to see rent increases.What is surprising is the different between the two groups. Some 43 percent of SFR tenants in 2010 and 44 percent in 2011 felt their rents would increase. Among multifamily tenants, 43 percent i2010 and 53 percent in 2011 felt their rents would increase.
The single family tenant differs from multifamily in a number of significant ways. They earn more, are more likely to be families and have more household members, and need more space. Because the category has grown so quickly, little is known about the single family tenant. The John L. Burns study makes a huge contribution to our understanding of this segment, which is larger today than multifamily.