Investment properties: What do renters want?
Iris Price | Improvement Center Columnist | November 17, 2014
Listen up, landlords and potential rental property investors. The tenants have spoken, and the number one priority for choosing a rental property is…
Affordability…at least according to Apartments.com's monthly survey for October of 2014. Homes.com and ForRent.com jointly conducted a survey in the spring of 2014 that fleshed out the profiles of today's typical renters to provide an even more complete picture of what tenants want. Despite the tight supply of rental properties, 80 percent of your potential tenants are scouting for amenities, touring up to six properties before deciding to sign on the dotted line. If they are forced to spend top dollar, they want the goodies.
In many metro areas, however, it's definitely a landlord's market right now. The ratio of renters to vacancies is spiking rents, and property is rapidly appreciating again in such places as San Jose and San Francisco, where rents in June 2014 soared 13.5 percent and 11 percent year-over-year, respectively. Even in Oklahoma City and Tulsa, good short term profits for mom-and-pop landlords -- the difference between their monthly rental income and mortgage payments -- rank those cities one and three out of the top ten in the U.S. for profitable property investments.
How much is too much to pay for rent?
Rising rents are taking a bigger and bigger bite out of tenants' income, which is why affordability is such a concern for many renters these days. Once upon a time the gauge of how much was too much of your income to spend on rent was 30 percent. The Harvard Joint Center for Housing Studies reported in 2013 that half of all renters spent more than that, and 25 percent of those had to allocate as much as 50 percent of their income to pay their rent.
How are renters dealing with these financial burdens when in many markets wages aren't even keeping pace? More and more of them are taking on roommates. According to Zillow's Real Estate Research from October, 2014, "...32 percent of working-age adults - aged 23 to 65 - live in doubled-up households." These are adults whose income is only about 76 percent of the median. In many cases, this is the only way singles can afford their rent.
What amenities do renters want?
In high-rent areas, tenants are willing to make some sacrifices but are hoping to get something in return. The days when apartment complexes offered deals for new renters are becoming a distant memory in some places, but the large properties still have a leg up on small property investors who can't offer things like covered parking, swimming, outdoor entertainment areas/balconies, and exercise facilities on site. As a landlord, you may have to get creative to lure potential renters, and a "charming bungalow" may not cut it when you are up against the amenities offered by many bigger rental companies.
A sampling of renters who live in high-rent locales revealed these preferences:
- From Sean Hailer, a senior manager of administrative operations in the San Francisco Bay Area: "Close to work, pet friendly, pet-rent, cute, affordable, and ample parking."
- From Raini Caravella a bartender in the Hamptons, New York: "I look for clean, newish…affordable, pet friendly." The last is a deal-breaker.
- From Norma Madeo, a retiree in New York City: "Besides a good location, I want my apartment to be bright and cheery, have a good view and windows in the bathroom and kitchen." She didn't get the latter, but is pleased with the apartment she's currently renting.
- From Andy Mills, a transplant to Honolulu from the mainland: "Affordable, location within about a 20-mile radius from work, accessible street parking in addition to a reserved spot. Actually, my work location often has a primary influence on where I live. My next place will add a space requirement because I plan on sharing it with someone."
For landlords who are considering upgrades to their investment properties or investing in more (or their first) rental properties, here are some of the most sought after features that renters of every age mentioned they are looking for according to various surveys like those from Homes.Com, ForRent.com and Apartments.com:
- More square footage, especially if tenants are doubling up
- Either pet-friendly or pet and smoke-free (for allergy sufferers)
- Walking distance to shopping, entertainment, and medical facilities
- Close to public transportation
- Washer and dryer in the unit
- Outdoor space for barbeque/entertaining
- Plenty of on-site storage options
What improvements should landlords make to investment properties?
As a landlord, if you are considering renovations, create larger or more equal-sized bedrooms for roommates. Open-plan living areas, freshly remodeled bathrooms and clean, modern kitchens with granite countertops and stainless steel appliances win over renters just as they do prospective home buyers. Affordability from the tenant's point of view can also mean new or newer energy-efficient appliances and improved insulation, or even energy-efficient windows to minimize monthly utility costs. Adding a small deck or patio if there is room in the yard, fencing the yard for children and pets, and improving the curb appeal with some nice front landscaping or new siding can be just the thing that makes potential but picky renters select your property to be their next home.
Attracting good tenants and keeping them should be the game plan for small property investors. You don't need to compete with the big guys, but you do have to offer perceived value for renters without wiping out your bottom line.
Photo credit to Quinstreet