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

by | BiggerPockets.com

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

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 home-owning 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 to 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 to 54? They’re smack in the middle, growing by 14 percent.

Related: 25 Single Family Rental Markets Predicted to See Growth in 2017

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.

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 a third (33.4%) 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.

Oh, and here’s a curious scrap of data: the growth in urban renters has all come from the better-educated. The number of urban renters with a high school diploma or less actually declined, dropping by 2 percent. Meanwhile, urban renters with a bachelor’s degree or more rose by 20 percent.

Who doesn’t love busting a stereotype every once in a while?

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.

Let’s Talk Suburbanization (Again)

I raised some eyebrows when I argued that the U.S. stands poised for a second wave of suburbanization a month or so ago.

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.

Related: 12 Reasons Why Rental Properties Are the Best Investment

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, 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 ten 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.

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.

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’ demand. 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 for 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 Jacuzzi 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? What opportunities do you see ahead, with older, higher-income, better educated renters?

About Author

Brian Davis

Brian is a landlord and long-time rental industry expert, who teaches a free mini-course on passive income from rentals at SnapLandlord.com. He's also preparing to launch a revolutionary rent deduction from payroll service. Swing by his website, SparkRental.com, for free resources and education for landlords, rental investors, and property managers.

24 Comments

  1. karen rittenhouse

    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!

  2. John Murray

    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!

    • Brian Davis

      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 😉

    • Brian Davis

      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!

  3. Gabe S.

    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.

    • Brian Davis

      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

        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.

  4. Ashley Wilson

    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!

    • Brian Davis

      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!

  5. deidre duker

    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!

  6. Dena Wesley

    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.

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