As more multifamily operators venture into the single-family rental market, (SFR) and build-to-rent arena, (BTR) they’re moving not only into a new real estate sector but a new renter demographic, as well. Prospective renter preferences and expectations vary significantly, as do renter profiles, between the multifamily and single-family space. Operators must market and manage accordingly for optimal property performance, so it is essential to define and distinguish the demographics for each group.
Prospective Renter Profiles
Recent research data from MetLife shows the SFR housing market is driven by millennials looking to start a family, remote workers desiring more space, and aging boomers.
In their research, MetLife expected remote/hybrid workers to be a force in the SFR market. Baby boomers and millennials were not expected to be so prominent in the results, but it isn’t a complete surprise. Higher requirements for home purchases coupled with student debt have put home ownership out of reach or forced many to significantly delay it. About 70% of renters in this generation have decided to delay home buying if not outright abandon this goal.
In a bit of irony, it was the millennials desire for smaller, one-bedroom apartments 10 years ago that drove multifamily to focus more heavily on those builds, and is what’s helping to drive millennials to the SFR market today as they outgrow those spaces.
SFR also caters more heavily to married renters with families, or those who are in the family planning stage of their lives and looking for homes that can accommodate new additions. Roughly half of SFR prospects have kids and more than a third are married, while the vast majority of multi-family residences (MFR) residents are single.
Baby boomers are also attracted to SFR for financial reasons but of a different sort. Home ownership requires a significant up-front investment, as well as additional time and money investments after purchase. Boomers who want to live in a home but are dealing with living on social security or shrinking returns on savings will find SFR opportunities more appealing.
MFR rentals, particularly in the urban sector, are being driven by Gen Z, which was the only generation to record an increase in renting in 2021, according to a survey by RentCafe. This generation is looking mostly in urban areas with a population of 250,000 or greater. Overall, there was a 21% increase in rental applications of this age group, but some cities saw increases as high as 101%.
Renter Needs and Preferences
The differences in lifestyles between MFR and SFR residents largely dictate their needs and preferences, as well.
According to a 2022 Brivo study, 78% of workers prefer to work from home at least some of the time. The impact of this remote work trend is changing the needs of renters in both the SFR and MFR spaces, but to different degrees. Many remote workers desire a home that lets them separate their work and personal spaces, which SFR is capable of offering to residents. Many apartment communities, especially in the urban sector, aren’t geared toward larger spaces. In-home work nooks or shared co-working spaces might appeal more to MFR renters, who don’t make that a priority.
Single-family homes attract renters seeking additional space for their family, including features like a private yard for their kids and pets. Renters in SFR and build-to-rent (BTR) properties also prioritize family-friendly neighborhoods and proximity to good schools. Many of these people are millennials looking to stop living with roommates and start families. According to a recent report by 60 Minutes, the supply of homes in the United States is short by about four million. This has forced many would-be buyers to seek out rentals instead.
Meanwhile, MFR renters routinely search for properties with an active internal community, neighborhoods with dining and nightlife options, and convenient locations with easy access to necessities, entertainment venues and transportation.
With more established families and typically more family members, SFR households also require additional storage. Oversized garages, basements, closets and additional storage options are highly coveted features by SFR and BTR residents, whereas shared parking and standard in-home storage typically accommodates the needs of MFR.
Interest in Rental Housing Investment
Whether MFR, SFR or BTR, rental real estate continues to be a stable market with historically steady, recession and inflation-proof returns. Over the past year, rent prices in SFR have grown at a national average of 10% with some Sunbelt markets seeing rent growth around 12%. This is significantly higher than multifamily rent growth.
This has driven investment interest from not only established operators but also new players in the market looking to capitalize on the current income potential in the industry. Investment dollars in SFR has grown from $3 billion in 2019 to more than $50 billion as of March 2022.
One advantage SFR has over MFR is turnover, according to investment firm RoofStock. SFR renters stay in properties for an average of three years, which is more than double the rate in the MFR market. In addition, leases lasting five years or longer are not uncommon in the SFR sector.
The pandemic predictions of a collapse in the MFR urban market have not been realized. Where there was a decline for a period, urban markets are coming back strong, driven primarily by younger generations, who still seek all the social benefits that come with an urban lifestyle.
In an environment of heightened competition, investors and operators who acknowledge and embrace the differences in demographics from one rental housing sector to the next, will position themselves to better convert leads and maximize the performance of their properties.
They also need to utilize available technology that will appeal to the preferences, habits and lifestyles of their prospective residents, regardless of what type of property they’re pursuing.
Todd Katler founded Anyone Home to elevate the rental housing experience for prospective and existing residents. The company’s contact center and CRM provide the industry’s most accurate attribution and analytics reporting.
Reprinted with permission of Multifamily Insiders. Multifamily Insiders was created to provide the first true online networking group for the multifamily industry and its partners. For more information, visit www.multifamilyinsiders.com.