The rental market is complex and constantly changing. It’s important to do your research before purchasing investment property, but even seasoned independent landlords can benefit from staying on top of current market trends. Trends can help guide you in making decisions such as whether it’s a good time to purchase, if you should raise the rent (and by how much), and what time of year to get your advertising game on.
In order to give you a quick overview of the rental market today, we’ve pulled together a list of the most important landlord statistics in recent years, curated from landlord influencers like Zillow, RentPrep, and RealtyTrac. We also provide some insight as to what factors landlords may be weighing when reviewing renters' applications.
The stats below give you a good idea of national trends, but you should stay on top of local trends as well. Statistics in your city might vary widely from the national averages, and you’ll want to be aware of how they are the same or differ so you can make the most informed decisions about your property and renters.
Here are some important landlord statistics you should know:
1. 88% of property managers increased their rental rates over the past year
According to Rent.com’s 2015 Property Manager Report, 88% of the property managers they surveyed increased their rental rates over the past year. One of the ways you can make sure you're claiming the fair market value of your rental property is to look around what is currently available for rent. If rents similar to your rental are going up, this means you both can and should consider increasing your own rent price. After all, your own expenses invariably go up each year, from property taxes to your own office rent and employee salaries. In order to ensure that being a landlord is going to be profitable for you, you’ll need to keep up with expenses and maintain a positive cash flow.
A 10% annual increase is a good starting place. However, you should check your own cash flow projections, along with the market rate for rent in your area, in order to determine how high to raise the rent. If you raise it too high, you run the risk of extended vacancy periods and that can be an expensive mistake. Last but not least, you should always check your local housing laws to make sure your rent increase is in compliance with legal limits. You’ll want to revisit this step during each tenant turnover or lease renewal to be sure you’re charging enough rent and raising rent during renewals.
2. 2016 Homeownership rates are at a 50 year low
Zillow reports that today, the homeownership rate is at a 50-year low (in all four major regions), down from all-time highs in 2004. This is largely due to the fact that home values have risen faster than incomes, and are becoming less and less affordable for many renters.
Another factor is that younger Americans are for the most part delaying many life decisions that may precede buying a home, such as marriage or starting a family. They are also more likely than previous generations to have the burden of student loan payments, meaning that it takes longer to save for a down payment. For this reason, along with an appreciation for the flexibility that renting offers, millennials tend to stay in the rental market through their 20s and mid-30s.
While the rates were for slightly higher for those in the 35-to-44 year old age bracket, in general, the low homeownership rates suggest that that income growth is failing to keep pace with growth in housing costs.
With renter households growing at a faster rate than owner households, landlords are at an advantage in the rental market.
3. Every day, there are more than 2,600 new renters
The Rental Protection Agency reports that the increasing growth rate of new renters means about 2,654 individuals are entering the rental market every day. This means that it’s a great time to be a landlord. Rentals are flourishing, and the number of new rental households is consistently increasing, leading to some of the strongest numbers in recent decades. As RentPrep points out, with the demand for rentals exceeding the supply, landlords have more applicants to choose from (leading to a higher chance of finding good tenants) and are seeing an increase in profits.
4. There have been 15.3 million foreclosures filed since 2008.
RealtyTrac recently provided some insight on the worst case scenario for a rental property owner--a foreclosure. While the foreclosure rates have improved, more than 15.3 million foreclosures have been filed since 2008, with a spike of over 2.8 million foreclosure starts in 2010.
It’s a good reminder for landlords that, even though it currently appears to be a landlord’s market, foreclosures are still a very real possibility. As a landlord, how do you prevent the worst from happening? The key takeaway here is to keep an eye on your cash flow. Calculating cash flows incorrectly or setting rent prices too low could mean that you’re struggling to make a profit or break even each month. You’ll want to be sure to take all your costs into consideration when calculating monthly expenses, including maintenance costs. Even small maintenance jobs can add up over time.
Along with calculating your cash flows correctly, you want to be sure to find the right balance between renting your property in a timely fashion and screening tenants properly. A tenant who doesn’t pay is a big risk because the process of evicting them and finding a new tenant is expensive and time-consuming.
TransUnion SmartMove data based on customer experiences found that total eviction-related expenses for property managers averaged $3,500 and can reach as high as $10,000. With the number of renter households on the rise, the odds are in your favor, but you don’t want to skip this important step and risk losing your property to foreclosure.
5. Renter households are more than twice as likely to be housing cost burdened as owner households
The government defines households that spend more than 30% of their income on housing costs as cost burdened. If a household spends 50% or more of their pay on housing costs, they are classified as severely cost-burdened households.
According to SmartAsset, housing affordability is especially a problem for households that rent. In fact, Harvard’s Joint Center for Housing Studies found that 27% of renters are severely housing cost burdened, and this number is expected to increase by 11% by 2025. Of course, this varies by location and family size. A single person may be able to swing a higher ratio in rent, while households with several dependents may find the 30% threshold difficult to manage. (Since the federal Fair Housing Act prohibits discrimination against familial status, the 30% standard is still the best measure to use.)
SmartAsset reports that cities in coastal towns have the highest proportion of residents spending 50% or more of their income on housing costs. Cities in the Midwest and West tended to have less severely housing cost burdened households. In some big cities, where the rent has become unaffordable, renters are moving farther out in order to find places to rent that are less expensive.
For landlords in suburban areas (especially those with access to good transportation), this is good news. They may be in an even better position to keep units full. However, in general, the high number of rental households that are cost burdened is a nationwide concern.
With so many people going over the recommended 3:1 income-to-rent ratio, it’s more critical than ever for landlords to find tenants that will prioritize their rent. How can you determine this? A credit check is one of the best ways to find out if an applicant is willing and able to pay his or her rent. Their past payment history is a good indicator of their future behavior, so a credit report gives you an idea of how responsible they are with their money and how likely they are to pay their rent on time.
6. 56% of landlords strongly or somewhat agree that no matter how much they like an applicant, if their credit check is bad they won’t rent to them.
According to a 2016 SmartMove User Survey, most landlords agree that how an applicant has dealt with credit in the past is a key factor in deciding whether they get approved as a tenant. While occasionally an applicant will have poor credit due to a rough patch, a credit report is a good indicator of the way they handle their finances in general. Perfect credit isn’t necessary, but past bankruptcies, collections for unpaid rent, and tenant judgements can all indicate potential problems in the future.
Conducting credit checks on prospective tenants is clearly a highly influential factor for most landlords when deciding whether to lease to a prospective tenant.
Given that it currently appears to be a landlord’s market, most landlords are capable of finding new tenants without much trouble. The key to success, then, is taking advantage of this leverage to find well-qualified tenants who will pay their rent on time and treat the property with respect, and doing your best to keep them in your rental for the longest amount of time possible.
A thorough screening process is the best way to predict a favorable tenant outcome. TransUnion SmartMove is an easy, reliable online tenant screening solution designed to give independent landlords the results they want in a matter of minutes. SmartMove also provides ResidentScores, which help you score potential tenants with more precision than a traditional credit score.
By looking at SmartMove’s ResidentScore, a credit-based score tailored for the rental housing industry, in combination with a full SmartMove tenant screening package, you can get an in-depth look at an applicant’s background. TransUnion studies show that the end result is a higher quality tenant with an average increased tenure of nine months.Sources