Real Estate News & Commentary

The Changing Face of America’s Renters (& What It Means for Investors)

Expertise: Landlording & Rental Properties, Real Estate News & Commentary, Personal Finance, Real Estate Investing Basics
115 Articles Written
new-face-renters

Rewind 20 years. What did renters look like back then?

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If you thought of the cast of “Friends” (but poorer), you weren’t wrong. Historically, renters have been young and single, with low to mid incomes and typically less education than their homeowning counterparts.

But, over the past decade, while the rest of the world was busy hyper-focusing on millennials, something happened. The demographics among renters shifted, and not how you’d expect either. Here’s how the face of American renters has changed over the past decade, and what it means for real estate investors.

When Did Renters Get So Old?

RentCafe ran some interesting numbers from the Census Bureau, analyzing how U.S. renters as a group changed from 2009-2015.

The number of renters aged 55 and over exploded by 28 percent in that period. But renters under 35? They grew by little more than a tenth of that—a meager 3 percent.

That’s nearly 2.5 million new rental households among the over-55 crowd. And what about middle-aged types—renters aged 35-54? They’re smack in the middle, growing by 14 percent.

Nor are these empty nesters and seniors just tooting around the suburbs in their Buicks and Cadillacs. In cities, renters older than 55 grew by 21 percent. On the other hand, young urban renters under 35 only increased by 6 percent.

That’s especially impressive given that baby boomers and millennials are similar-sized generations with about 75 million apiece.

Related: Why America Has Ditched Homeownership to Become a Renter Nation

Renters Became Better Educated

Nearly all of the growth among renters has been driven by those with at least some college education. The number of U.S. renters with a bachelor’s degree or higher shot up by 23 percent. Renters with some college (or equivalent) grew by 17 percent. But renters with a high school diploma (or less)? They only grew by 1 percent.

“Well, duh, more Americans are getting diplomas today than 10 years ago!”

Sure. Fine. But the growth of college graduates alone can’t account for this shift in renter demographics. About one-third (33.4 percent) of American adults have a bachelor’s degree today. That’s higher than the 28 percent we saw a decade ago, but still not enough to explain this explosion of better-educated renters.

DINK

Double-Income-No-Kids. Anyone else find that acronym a bit obnoxious? I digress.

The greatest growth in renters hasn’t come from those squirrelly millennials who insist on waiting longer to get married. Quite the opposite, actually; growth among unmarried renters has actually been the slowest of all groups (10 percent).

The number of U.S. renters with children grew by 14 percent. But married couples with no children? They grew by a peppy 21 percent. Couples with no children made up the largest spike in renters in both urban and suburban areas, jumping 16 percent in cities and a huge 33 percent in the ‘burbs.

couple-no-kids

Let’s Talk Suburbanization (Again)

I raised some eyebrows when I argued that the U.S. stands poised for a second wave of suburbanization in a previous post.

While cities certainly saw growth in renter population from 2009-2015, the suburbs saw more. Much more. Growth of suburban renters outpaced urban renters in every age bracket, in some cases by more than triple speed.

The Rental Resurgence of Single-Family Homes

The suburbanization movement can be seen in the rise in popularity among single-family rentals.

According to the Urban Institute, at the time of this writing, single-family rentals now make up 35 percent of the 44 million rental housing units in the U.S. That’s up from 31 percent 10 years ago.

If those numbers don’t impress you, consider the rates of growth. The U.S. has added single-family rentals at a significantly faster pace than either multifamily rental units or single-family homes for sale since the Great Recession.

Related: 7 Reasons You Should Consider Investing in Single-Family Homes

How much faster? Over the past three years, growth in single-family rentals has clocked in around 30 percent annually, compared with roughly 15 percent for multifamily rental units. And single-family homes for sale? They spent seven years declining, reversing that trend only last year.

It may seem long ago now, with housing prices having climbed so quickly over the past few years, but the story of the Great Recession was one of moving away from homeownership and of “accidental landlords” who were unable to sell.

single-family-home

What’s Behind These Renter Demographic Changes?

Why are more older, higher-income, better-educated Americans renting rather than owning?

Low inventory is one challenge. Housing inventory for sale across the U.S. continues hovering at 20-year lows, at around 4.2 months’ supply. And that’s averaged across the U.S. and includes many slower, low-demand regions. And around popular urban areas with plenty of jobs, inventory is even scarcer.

Nor is that inventory even meeting buyers’ demands. New construction heavily favors luxury homes for their higher margins, creating an enormous shortage of starter homes.

Then there’s the fact that prices are rising faster than rents. Zillow’s home price index rose 6.9 percent over the past year, while their rent index only rose 1.6 percent.

Still, it’s not all about low supply and high prices. Fewer Americans even want to buy a home. Many were burnt so badly during the housing crisis, or saw their parents burned so badly, that they no longer consider owning a home as part of the American Dream.

And perhaps older adults are onto something? Who wants to stress about home maintenance or landscaping in retirement? Maybe they’ve decided that outsourcing home care, repairs, and maintenance is worth paying a certain premium.

If renting was once the purgatory of the young and the lower-income, it’s now become a lifestyle choice.

Implications for Real Estate Investors

What can real estate investors and landlords take away from these trends?

First, don’t write off middle-aged or senior demographics as “uninterested” in your rentals. Older adults come with plenty of advantages for landlords, such as being more stable than younger renters and more likely to stick around your property longer. Consider marketing your rental properties specifically to retirees, as they can make excellent renters.

Second, keep an open mind about lease-option agreements. Many renters do want to buy at a certain point, but they just aren’t ready yet. A lease-option agreement will let you sell your property for full market value without having to pay a realtor’s commission, and offers an incentive for renters to treat your property with kid gloves while they’re renting it.

Third, if you focus primarily on multifamily properties, don’t dismiss single-family homes as rentals. There’s plenty of demand for them as rentals, even as they continue to appreciate in value. They’re easier to sell for top-dollar when the time comes to exit and liquidate.

Lastly, with higher-income Americans choosing to rent, it means greater potential for premium rents…if you provide high-demand amenities. Whether that means smart home tech, private parking, or hot tubs, plenty of mid- and higher-income Americans are happy enough to hand over rent money for the right property.

What changes have you seen among your own rental properties? And what opportunities do you see ahead with these changes?

Share with a comment below!

G. Brian Davis is a landlord, personal finance expert, and financial independence/retire early (FIRE) enthusiast whose mission is to help everyday people create enough rental income to cover their living expenses. Through his company at SparkRental.com, he offers free rental tools such as a rental income calculator, free landlord software (including a free online rental application and tenant screening), and a free masterclasses on how to reach financial independence within 5 years.

    Carmen
    Replied about 2 years ago
    Fascinating article. Thank you. 🙂
    G. Brian Davis from Baltimore, MD
    Replied about 2 years ago
    Thanks Carmen!
    Christopher Smith Investor from brentwood, california
    Replied about 2 years ago
    This article reflects closely with my experience. I rent upper middle class properties in great neighborhoods and 40 percent of my tenants are retired, 40 percent are working middle aged couples and 20 percent are young adults.
    G. Brian Davis from Baltimore, MD
    Replied about 2 years ago
    Sounds like a winning strategy to me Christopher!
    Karen Rittenhouse Flipper/Rehabber from Greensboro, NC
    Replied about 2 years ago
    Brian: I greatly enjoyed your post. Thank you for all the detailed information. I have been buying single family houses since 2005 and many ask why I haven’t “moved up” to multi-families. I love and understand single family. This form of investing has been very good to us and we now have well over 100 SFH which we’re paying off through wholesale. When investors question my strategy, I can now point them to your post. Thanks!
    G. Brian Davis from Baltimore, MD
    Replied about 2 years ago
    Wow Karen, congratulations on your success with SFHs! That’s an impressive portfolio. Glad to hear they’ve been so lucrative for you!
    Sourabh Bora from Bronx, New York
    Replied about 2 years ago
    Brian never disappoints. One of my favorite real estate authors
    G. Brian Davis from Baltimore, MD
    Replied about 2 years ago
    Thanks Sourabh! Very much appreciated!
    John Murray from Portland, Oregon
    Replied about 2 years ago
    Great Article Brian! I have SFH rentals and here is what I noticed. Many people have income stream but next to nothing in capital. Higher education and scholarly achievement does not correlate to hard work, intelligence or the big common sense. I was surprised in research that the average net worth of a 35 year old is only $20K. So one slip on the banana peel and of you go under the bridge. As our economy moves the service sector people are getting poorer, yet they want luxuries and their security seems to be not an issue. When Rome had the same problem the solution was have the Games! Maybe our solution will be the NFL!
    G. Brian Davis from Baltimore, MD
    Replied about 2 years ago
    Haha, I hear ya John! I’d like to think that those who want to get ahead in today’s world have more options than ever at their disposal, thanks to the wealth of information and education available online. But it requires self-motivation, and not everyone has that 😉
    Karin Vogler
    Replied about 2 years ago
    revolutionary rent deduction from payroll service? What does that mean?
    G. Brian Davis from Baltimore, MD
    Replied about 2 years ago
    We’re about to launch a service that pulls the rent directly from the tenant’s paycheck. It’s especially useful for higher-risk applicants, but we’re keeping it affordable enough to be used by anyone who wants to automate their rents. If you want early access to our system, shoot me a PM!
    Gabe S. from Vienna, Virginia
    Replied about 2 years ago
    Good read. Be very careful with the lease options though. A tenant can claim equitable interest in the property…. you won’t be able to evict if they start skipping payments etc. You have to evict. Not worth the trouble. Better to keep it to a simple renter agreement with an oral “by the way comment”…. if you decide you ever want to buy just let me know. We can work out a price/etc at that time. Keep it clean.
    G. Brian Davis from Baltimore, MD
    Replied about 2 years ago
    Lease options definitely have their risks, although there are ways to mitigate those risks. And an option to purchase is not the same a contract of sale – I can’t comment for every single state, but my experience has been that tenants with an option to purchase can be evicted, not foreclosed on, if they haven’t executed their option to purchase yet. But you’re right that landlords need to be careful and do their homework before trying a new strategy like lease option agreements!
    Karen Rittenhouse Flipper/Rehabber from Greensboro, NC
    Replied about 2 years ago
    You need to check, Brian. A lot of the rules with lease option changed with Dodd Frank. Here in North Carolina, you must foreclose on a non-paying tenant as they now have equitable rights in the property once they put down their deposit on a lease to purchase. I believe the law is federal. You may be able to get away with an eviction unless they take you to court. But things are much more strict now due to all the consumer protection laws and, with gurus teaching lease option as a way to get deposits over and over, there has been a lot of abuse and the government tightened laws. We used to do only lease with option to purchase; now we do only straight rentals due to law changes.
    Gabe S. from Vienna, Virginia
    Replied about 2 years ago
    Sorry. I meant… you’d have to foreclose.
    Ashley Wilson Rental Property Investor from Radnor, PA
    Replied about 2 years ago
    Excellent article! As someone who primarily flips, it is very interesting to digest this information from that angle too…for example it highlights more purchasing in a good area with an exit strategy that provides this option too!
    G. Brian Davis from Baltimore, MD
    Replied about 2 years ago
    Thanks Ashley!
    Dustin Jones
    Replied about 2 years ago
    I wonder if the 25% increase in renters has anything to do with housing collapse last decade. They were in their 40’s and defaulted/sold and don’t have enough credit/money now to own.
    G. Brian Davis from Baltimore, MD
    Replied about 2 years ago
    Possibly Dustin. Although the homeownership rate in the US tells a slightly different story – it declined from 2004 to 2016, and has risen since then. I do think that Americans today are more sophisticated in their approach to housing than they were a generation ago. I believe more Americans ask themselves whether buying is a good choice for their particular goals and plans, rather than just assuming that homeownership is the right path. And the Recession definitely had something to do with that!
    Deidre Duker Investor from Nashville, Tennessee
    Replied about 2 years ago
    Great article. While I have not experienced much demand from older renters in the markets where I own properties– my tenants tend to be millenial singles and young families– I believe the adage that “what got you here will not take you there.” I’ll test your ideas at my next vacancy and will try marketing to older adults. From many perspectives, as you pointed out, they’re an attractive tenant pool. Thanks for the post!
    G. Brian Davis from Baltimore, MD
    Replied about 2 years ago
    I haven’t heard that adage in a while Deidre, it’s a good one though! Thanks for the comment 🙂
    Dena Wesley from Kansas City
    Replied about 2 years ago
    Nice article Brian. I recently bought, rehabbed and moved into a town home that I plan to rent in another year and my neighbors who are retired, have been renting for over 11 years! Definitely a demographic to consider. Thanks for the insight. I always take away something from reading your posts.
    G. Brian Davis from Baltimore, MD
    Replied about 2 years ago
    Thanks Dena! And congratulations on the new purchase, very exciting!
    Marshall Easlick Investor from Wellington, Colorado
    Replied almost 2 years ago
    Wow, Brian! This is an excellent and impressive piece of work. Everyone loves to see numbers to back statements and ideas– you’ve delivered. Much appreciated!
    G. Brian Davis from Baltimore, MD
    Replied almost 2 years ago
    Thanks Marshall, always nice to hear that your work is appreciated!