This Year’s Renters Want More Space, Good Deals and the Great Outdoors

Winston Rowe and Associates

Renters are on the hunt for open-air amenities, more space, and a better deal in the city they already live in as 2021 unfolds, according to a recent RENTCafé survey on how renters’ preferences have changed as a result of the pandemic.

An improvement in lifestyle was the main driver for the more than 10,000 people who participated in the survey while searching for an apartment on rentcafe.com. The top features respondents searched for a year into the pandemic included open-air amenities (21%) and more space (20%)—data that stands in stark contrast to RENTCafe’s March 2020 survey, where top drivers were price and safety. In addition, space and open air amenities were more important to renters than WFH amenities like home offices.

The prospect of a better deal motivated 29% of respondents, while the need for a change of scenery prompted a quarter of those surveyed to move. And perhaps most interesting? Contrary to breathless pandemic-era reports of Americans ditching their cities for secondary markets, approximately 90% of renters were looking for long-term rentals with 48% looking to remain in the same city. A mere 4% of renters chose to move because they could now be more flexible by working remotely.

“This shows that improving housing conditions—not drastic change—is the goal,” RENTCafe notes in the survey findings. Of those surveyed, one-third (34%) reported they’d already moved once over the last year, with the majority doing so because of the pandemic.

“After months of staring at the same walls, it’s understandable that some people want to make a move now, if only for a change of scenery,” the survey findings note. “However, many of those who moved back in the spring of 2020 seemed to have done so out of need—not because they wanted to. More precisely, their reasons for moving during those uncertain early days of the pandemic were related to their lease being up or feeling financially insecure.”

The survey also revealed that space and open-air amenities were more important than work-from-home amenities. Only 10% said a good internet connection was crucial, and  5% said they needed a home office.

Despite this data, the multifamily industry is prepping to meet the demands of a growing body of WFH renters. Research last year from Newmark showed that multifamily owners are increasing floor plans to create more flexible spaces (think one-bedroom plus a den) and more outdoor space to accommodate workers who are staying home. The firm advises developers, however, to make more incremental changes to unit mixes and amenities since resident needs are still being hashed out as the pandemic wears on.

Source: globest.com

New York Apartment Demand Surges As The City Jumps Into Reopening Mode

Winston Rowe and Associates

A full year into the pandemic, New York City landlords are securing new leases at a rapid clip as depressed prices appear to be luring back—or holding on to—tenants willing to sign for the right deal.

New York buildings in Manhattan, Brooklyn and Queens, the number of leases signed during February beat a record set in 2012 during the comeback from the global financial crisis. The median rental price—lease value net of concessions—fell at least 11% across those boroughs last month, according to a new report by Douglas Elliman Real Estate.

The news comes as New York City slowly begins to reopen. Restaurants will soon be able to operate at 50% capacity and movie theaters are once again beginning to show films. It’s been a brutal year for the city; the seasonally adjusted unemployment rate stood at 11.4% in December, a 7.8% increase over December 2019.

Hundreds of thousands of New Yorkers fled the city at the onset of the pandemic, to ritzy enclaves upstate, quiet towns in the Northeast and other pockets of the country. The coming months will help reveal how many intend to return, and whether rental prices will subsequently increase.

In light of the revived demand, some owners are temporarily keeping units off the market in the hopes of a sustained rebound that may help them get higher rates sooner than expected. According to UrbanDigs, a real estate insights firm, in Manhattan landlords took more than 1,800 apartments off the market in February, as the Wall Street Journal reported earlier this week. For their part, renters are enjoying the reprieve from record prices, which peaked just before the pandemic.

Below is a closer look at the current New York City rental market, utilizing data from Douglas Elliman and Miller Samuel Real Estate Appraisers & Consultants.

Manhattan

Non-luxury units offer the best deals, with apartments of three or more bedrooms having the biggest year-over-year discounts, possibly a sign that after living through lockdowns, renters are looking to live with fewer roommates. The median rental price dropped 22.7% over the last 12 months on those units. Two-bedroom apartments are down 8.9%, while studios are down 19.3%.

New signings are up dramatically from February 2020, but the overall vacancy rate remains high, at 5%, compared to 2.01% last year.  More than 40% of new leases come with some form of landlord concessions, the authors said, often one or more months of free rent during the first year after signing.

Brooklyn

Brooklyn saw the “highest number of new lease signings since tracking began during the financial crisis,” Miller Samuel reports, at 1,834 for February, a 133% year-over-year increase. Still, the median effective rent dropped 16.3%, more than any other year in almost a decade. Nearly 40% of new signings last month included landlord concessions.

Studios are commanding the best discounts; median rental prices fell 18.8% compared to last February, while second place goes to apartments with three or more bedrooms, at a 12.5% decline. Still, a glut of inventory remains; there are 3,438 listings in Brooklyn, up from 1,375 a year ago. That figure doesn’t even account for units that have been pulled off the market.

Queens

The story is largely the same in Queens, where February also set a nine-year record. Inventory is up 64% compared to last year, and 36% of signings include concessions.

Overall, the median rental price dropped 13% compared to last February, to $2,522, with studios taking the biggest hit at a drop of 28.7%.

Source: forbes.com

9 Reasons to Reject A Tenant Application During the Pandemic

Winston Rowe and Associates

The pandemic led to many property owners finding themselves with tenants that are thousands of dollars behind in rent. Property owners, faced with the recently-extended eviction moratorium, likely want to know how to avoid renting to applicants that may add to their list of tenants not paying rent during the COVID-19 crisis. One way to reduce the risk of having tenants that do not pay rent is to explore the reasons to reject a tenant application during the pandemic. 

Understanding the nationwide eviction moratorium likely helps property owners collect as much as possible in rental payments from tenants. The effect of non-payment of rent on property owners, and the rights of landlords during the pandemic, is another area that needs exploration while considering whether current screening methods are effective. The American Apartment Owners Association assists property owners with tenant screening services, tenant credit checks, and information related to landlord rights. 

If you are a property owner with tenants that owe back rent, you are not alone. The Los Angeles Times reported that millions of tenants were unable to pay rent at the time of the article publication in February 2021. The article cited the Urban Institute and Moody’s Analytics, who stated that more than nine million tenants owed an average of nearly $10,000 each in back rent. The article included information from a survey conducted by USC and UCLA indicating that households with less than $25,000 income in 2019 were the most likely to default on rent during the COVID pandemic, with households earning less than $50,000 at a close second among those that were most likely to not pay rent. 

What does this mean for property owners that want to avoid renting to tenants that cannot pay rent? In addition to the rules that prevent landlords from evicting tenants that comply with the moratorium rules, they are also prohibited from denying housing to applicants based solely on rent that is accrued during the coronavirus pandemic. 

Another issue for landlords to be aware of is the fact that several sources indicate that the rate of fraud in tenant rental applications has increased during COVID-19. This typically occurs during recessions, and requires due diligence to fight tenant application fraud. 

Consider these nine reasons to reject a tenant application during the pandemic, and to thoroughly screen applicants, using the AAOA rental application as your guide. 

1. The rental application is not properly completed 

Missing or vague information raises a red flag. Many states have identical or similar guidelines for rental applications and screenings. One example is the Ohio Fair Housing Guide for Landlords. The guide suggests that property owners use current applications that ask detailed questions without violating laws regarding protected classes or other illegal application information. 

2. The applicant insists that the property owner uses the credit check printout that the applicant brought along 

Credit check printouts provided by applicants are easily created on a home computer. Relying on a professional rental credit check for information helps to protect you. 

3. Information on the application does not match information obtained through the tenant screening report 

Applicants that transpose digits of their social security number, provide a false or misspelled name, or that provides a fake address are reasons to reject a rental application even during the pandemic. 

4. An applicant provides self-supplied references  

Self-supplied references from an alleged employer or landlord may be the applicant’s friend or relative. The standard rental application form provides property owners with documentation of the contact information for references. If the references do not check out as valid, or otherwise do not meet rental requirements, there is a record that protects property owners. 

5. An applicant provides pay stubs but does not want the employer contacted 

Pay stubs and a written statement regarding an applicants’ employment can be faked or forged with little effort. Requiring employer contact information on the basic rental application form provides the company contact information, which allows for a direct check with the company. 

6. The prospective tenant is vague about income 

Many people work from home since the pandemic started, and there are millions of people that are legitimately self-employed.  

USA.gov, the Official Guide to Government Information and Services lists verifying a tenant’s income as one of several ways that property owners can protect themselves from scams that target property owners. 

7. The applicant wants to rent the property sight unseen 

The FBI lists this as one of the warning signs that is an indicator of fraudulent activity targeting property owners. Agreeing to this likely means that the applicant also wants to send the application fee and rent without meeting in person. 

8. There is an unusual sense of urgency to rent the property 

What does the tenant have to hide? Why is there an urgent need to rent the property? Applicants may offer to pay more than the deposit or rent to get the property owner to quickly rent them the apartment.  

This is another red flag from the list of common rental scams described by the FBI. Sticking to the strict tenant background check procedures means less risk of being scammed while still complying with the extension on the eviction moratorium. 

9. There is a history of evictions 

Although property owners are not permitted to deny tenancy to an applicant that is based solely on rent accrued during the coronavirus pandemic, a history of prior evictions is still a legitimate reason to reject a rental application.  

Can I Evict a Tenant for Reasons Other than Non-Payment of Rent? 

This is an area where property owners still have protections and resources during the COVID pandemic. The State of North Carolina provides an answer to this question which is similar to many other states. Property owners can indeed have tenants removed for reasons not related to rental payments.  

If a landlord discovers that tenants lied on their application, engaged in criminal conduct, damaged the property or committed other offenses in violation of the landlord tenant laws, an eviction action may proceed if the property manager explains the reason for the proceedings, and the judge or magistrate grants the request. This is true even if the tenant completed the CDC Declaration Form. 

Some property owners likely feel that they have no recourse to reject rental applicants or tenants once they move into a property because of the pandemic. Fortunately, courts and government agencies still allow property owners to continue screening for qualified applicants, and to legally remove tenants for just cause. 

How to Price Your Rental in a Small, Secondary Market

The time-honored mantra of real estate – “location, location, location” – drives everything from a property’s purchase price to the rental rate. It can even dictate how much or little you should invest in improvements.

Real estate markets are classified by location type. There are primary, secondary, and tertiary markets, sometimes called Tier I, Tier I, and Tier III. The market classification for your rental property will be a crucial consideration as you set its rental rate.

An area’s population and state of real estate market development determine its classification as a primary, secondary, or tertiary market.

Primary Markets

Primary, Tier I markets are typically larger cities of 5 million people or more, with well-established rental markets. Examples include Chicago, New York City, Boston, San Francisco, Los Angeles, Washington, D.C., and Dallas-Fort Worth.

These large metro areas are usually more expensive than other metro areas – for both buyers and renters – due to consistent demand for housing.

Secondary Markets

Growing cities are considered secondary markets; their growth creates demand as new people move into the area, supporting new business development and job creation.

These Tier 2 locations demonstrate more real estate market flux, creating attractive opportunities for real estate investors.

Secondary markets tend to be a population of 2 to 5 million people. They are usually less expensive than primary markets but still in demand. Examples include Philadelphia, San Antonio, Phoenix, San Diego, and San Jose.

Tertiary Markets

Tertiary markets involve a lower population density of fewer than 2 million people. The population is spread out across a bigger geographic area.

There is typically less reliable job growth. In a strong economy, tertiary markets can provide attractive investment opportunities as property prices are typically lower.

These areas may be more expensive to develop as many are rural or outside of secondary market cities.

But can be prime markets for real estate investors as the properties cost less.

Whether you invest in a secondary market, tertiary, or primary market, it is essential to consider market-relevant data to price your rental correctly.

The key to pricing rentals in a primary vs. secondary market

The whole real estate cycle – from the purchase price to rental rate and eventual selling price relies on intelligence gleaned from current, comparable sales data for properties in the same price range.

When you review these comparables, you will get a good sense of amenities and the property improvements for other properties in the price range. As you determine your target rental rate, the purchase price is one factor but not the whole story.

You may be able to invest a small amount in fixing up the property, add or improve its amenities, and charge a higher rental rate than similar unimproved properties sold in the past year.

How you need to look at properties in secondary and primary markets differently.

Demand for rental property is always a local story. You can’t take an apartment in New York City and compare it to a similar apartment in Des Moines. Even if both cities are the largest in their respective states, large is relative –Des Moines has a population of 210,000, and New York City’s population is 8.175 million.

Even within Iowa and New York, you have the full range of markets to consider. So how do you determine the rent?

In real estate, comparing neighborhood properties wins out.

While you need to be aware of overall rates in the city where you plan to buy, your rental rate should be based on going rates in the immediate neighborhood. Each neighborhood will have a range that extends across unimproved and improved properties.

High-demand primary markets are top dogs because they have low turnover and can command higher rents. Secondary markets can present many growth opportunities. You can still improve a property in a secondary market to make it more attractive to tenants.

This will also allow you to raise rents accordingly. Tertiary markets also offer good opportunities, especially when the primary and secondary market values seem overblown.

Comparing apples to apples

In any market, you want to rely on current, accurate information to complete your analysis. Rentometer pulls rental rates from all online sources for current listings to provide you with accurate rental rates for any area. You can search within any state, city, or neighborhood to get the most up-to-date picture of rental rates.

Let’s compare rates for 2-bedroom, 1 1/2 bath rental units in Des Moines. The city’s average rent for this property type is $1,186 per month, but rates range from $943 to as high as $1,429. This range tells you that the right purchase price and a few property improvements could create a nice cash flow.

Comparing similar properties in a secondary market

Going a bit deeper, let’s compare three different neighborhoods in Des Moines: Downtown Des Moines, Bloomfield-Allen, and Merle Hay. Downtown has the highest average rents at $1,482 per month, while Bloomfield-Allen and Merle Hay show average rents of $890 and $891. Looking more closely at each area, you’ll find that Downtown has an entirely different culture and amenities from both the Merle Hay and Bloomfield-Allen neighborhoods. And while the two other neighborhoods are similarly priced, they have different amenities, culture, and crime levels.

It’s Time To Prepare Your Apartments For The Busy Leasing Season

Though every apartment community experiences its own unique seasonality, there are two points of the year that signal changes in leasing activity. There’s the slow season, which usually begins in the fall when the school year starts and the weather turns cold. Then there’s the busy season that begins when school’s out and the weather is nice.

We’re now only a few weeks away from when most communities will begin experiencing their busiest stretch of the year. They’ll have their highest demand—renters want to make their moves when it’s warmer—and their greatest turnover. It really is a make-or-break time for many properties because if they can’t generate enough leases to account for the number of residents moving out now, the task will become much harder when leasing activity slows.

To help, here are our recommendations to prepare your community for success over the next couple of months:

1. Check Your Lease Expirations

Reviewing your lease expirations is your first line of defense when trying to make your busy season more manageable. Why? If you know in advance that there will be a certain week or month ahead when a high concentration of leases will be expiring, you won’t be bombarded by suddenly having multiple units turnover at once. You can get ahead of it.

Plus, taking this step now gives you the opportunity to start thinking through your renewal strategy. Check out our blog post ‘4 Ways to Improve Your Apartment Community’s Retention Rate’—it has great ideas you could apply here to help you keep more leases.

2. Set Your Staffing

Take a look at your work schedule for the upcoming weeks. Will your best manager, or leasing agent, be going on a vacation or be away from the office? If so, get on that now. Being understaffed may affect your closing rates because your team’s ability to conduct in-person tours will be limited. Evaluate whether or not there’s an opportunity or need to add to your staff.

Don’t forget your maintenance team. You need to make sure they’re properly staffed and equipped to be able to handle their increased workload, too. When it’s your busy leasing season, your entire team needs to be hitting on all cylinders.

3. Make Changes to Your Digital Advertising Budget

The purpose of your digital ads is to drive more qualified traffic to your website, which begins the process of converting leads to leases. Think of using them in the same way as you’d use a water faucet. When you need traffic the most, just turn the faucet on.

We talk all the time about dynamic apartment marketing, and a lot of it is tied into how you utilize your digital ads. We believe that pairing a high budget, for times like the busy season when you’ll have more turnover, with a low budget, for when your occupancy is strong, is the best way to maximize your marketing dollars.

So, be ready to turn the faucet on and spend more on your digital ads for the next couple of months compared to other times of year. You will need to have enough ad dollars budgeted to run Defensive ads that defend your community’s identity, Remarketing campaigns on both Google and Facebook that keep your apartments top of mind, and perhaps some Offensive campaigns that allow you to compete against similar properties.

4. Review Your Rental Rates

An odd trend we see is some communities raising their rental rates on January 1st. Right now, at the onset of your busy leasing season, is actually the best time to be taking this measure.

You know you’re going to have more potential residents looking at you over the next few months compared to any other time throughout the year, because whenever you’re experiencing more turnover you’re also going to have more demand. It would make sense to raise your rates at a time when pricing isn’t weighed as much as availability.

We recommend lowering your rental rates about a month or so before the busy period ends. That way you have a better chance of filling up any units remaining in the final few weeks leading up to your slow leasing season, when it will become much harder to do so.

5. Prioritize Your Time

When you’re in the midst of your busy leasing season, you won’t have much time to focus on many parts of your job. For example, why would you be trying to do things like make design decisions when all you’re going to be concerned with in that moment is retaining current residents and attracting new ones?

If you have any pressing managerial decisions, like standard updates, try and complete those now. The goal here is to make sure you’re prioritizing all of your focus and energy for the busy leasing season, when time will be your most important asset.

Dallas’ Water Outages Persist, City Leaders Call on Apartment Owners to Do More

After a week without running water, residents of the Villas Del Solamar Apartments in Dallas say they finally got water back on Wednesday.

Since last week, many in the Dallas’ Vickery Meadows Neighborhood have been without water service.

“It’s ridiculous, it’s sad, it’s so sad,” said April Collins, who lives at Villas Del Solamar. “I haven’t gotten anything from the apartment, no letter, no nothing.”

Since the outage the City of Dallas has been supplying water and basic amenities – opening up the nearby library branch for people to use the restroom.

“It’s disheartening that they have residents who are paying rent and they are not caring for them like they should,” said District 13 City Council Member Jennifer Staubach Gates.

Gates says she’s been disappointed by the lack of initiative taken by multiple apartment complexes to care for their residents. According to Gates, the remaining water issues stem from privately owned infrastructure that is not the city’s responsibility to fix. In recent days, she says the city’s efforts to help those in need has also been complicated by a lack of communication between apartment owners and city services.

“These apartment owners need to be reaching out and helping us get their residents water,” said Gates.

On Wednesday, the Villas Del Solamar issued the following statement:

“Our hearts are with all Texans as we all work together to recover from the devastation caused by Storm Uri. Our work on behalf of our apartment community residents has been and will continue to be nonstop. We have a full team of workers on-site doing everything they can day and night to restore water access.

We have been actively working with residents to provide assistance while also working continually with local authorities to speed up the process in any way possible. Our 100% focus is on the safety and security of our residents. Since the moment the storm hit, and even before, we have provided ongoing updates, connected with local charities and resources to help people stay warm and fed, and done everything possible to provide water access, including arranging for a water bus and personally carrying in buckets of water from the water center across the street.

Like all of Texas, access to many of the supplies and resources we need has been limited during this emergency time. That said, as stewards of our community and people who genuinely care about doing the right thing, we know it is vital that our residents continue to have a safe and secure place to live. We are doing and will continue to do everything possible to ensure that for the immediate and the long term.”

In a statement, Ian Mattingly, President of the Apartment Association of Greater Dallas said he believes it’s important to consider the unprecedented damage sustained by apartment complexes.

“The Apartment Association has been working hand in glove with City of Dallas staff to identify and even deliver water and other supplies to affected residents.

Asking our members to do more is all well and good, but ignores the reality of the scale of this disaster. No one faulted the owners in Houston for taking a week to return water to communities impacted by Hurricane Harvey, and this disaster is like Hurricane Harvey hit every community in Texas all at once.

We ask our city leaders to continue to work with us and our members in addressing the numerous challenges our members are working to overcome in order to return our apartments to some semblance of normalcy.”

The problems aren’t unique to Dallas.

Tenants reported similar problems from Fort Worth to Plano.

Tuesday, residents of Bel Air Willow Bend in Plano filled up buckets of water and carried them back to their apartments which residents say have been without running water since Wednesday.

‘This is too much… frustrating. Every day, from morning to night, we need water,” said renter Kapil Gandhi.

Gandhi said he’s been told his complex could be without water for another week.

Nearby, at another complex, Corina Garcia, said her water was turned off Thursday. She said she’s getting by with bottled water but the crisis is complicating her recovery from COVID-19.

“So when they tell me, ‘Oh, come use the facilities at the office,’ it’s like, right, I can just run right over there. I can’t right now, I can’t do that, I have a hard time just walking downstairs,” Garcia said.

News story from KDFW-TV

Multifamily Apartments A Dichotomy Between Fundamentals And Prices

The economic stresses of the Covid-19 pandemic and ongoing shutdowns are taking their toll on renter-by-necessity households. While the prospects of a successful vaccine rollout are encouraging, the many renters who have lost jobs at restaurants, retail establishments, hotels, airlines and other struggling businesses are not going to see an overnight recovery.

The recent collection trends in the multifamily space support this potential for delayed recovery. Trends have been lagging as the Covid-19 pandemic and related CDC eviction moratorium drag on. For example, multifamily industry body NMHC said that 79.2% of U.S. apartment renters had made full or partial payment by February 6, worse than the 81.1% who had paid by February 6, 2020, but better than the 76.6% who had paid through January 6, 2021.

Thus, it seems likely that multifamily apartment fundamentals will remain burdened for much of 2021. This presents an ongoing risk to landlords and multifamily investment firms. My firm lives and breathes the multifamily market every day. Based on my experience in this sector, there’s more to be learned from the current trends as investors and owners look to what’s around the corner.

Multifamily Apartment Pricing

In clear contrast to rent collection trends, multifamily apartment pricing has gone up dramatically over the past year. Typical multifamily apartment property pricing has compressed from a 5.25%–6.25% cap rate one year ago to a 4.00%–5.00% cap rate today, roughly 125 basis points (bps) of cap rate compression.

Similarly, workforce housing apartments that rent for around $800 per month have increased from $60,000–$70,000 per unit one year ago to $85,000–$100,000 per unit today. Clearly, lower interest rates (agency rates have fallen from about 4.25% one year ago to about 2.90% today) have driven at least part of this cap rate compression.

This dichotomy between multifamily apartment pricing and on-the-ground fundamentals is concerning for multifamily apartment professionals and investment firms, particularly those looking to grow their portfolios in the year ahead. Indeed, near-term fundamentals will be stretched significantly to meet higher expenses and greater debt service requirements – even with lower interest rates.

Despite these near-term concerns, intermediate- and long-term prospects for the multifamily sector remain strong for several reasons:

• Incomes are growing, even at lower demographic rungs, leading to higher rent affordability.

• Home prices have increased (paywall) even more than incomes, pricing out much of the U.S. population and making these people renters by necessity.

• Demographic trends are favorable, including aging baby boomers moving into apartments and young people believing in increased mobility and flexibility and less ownership of “stuff,” manifesting in the prevalence of the sharing economy.

• Construction costs have increased significantly in recent years, and especially this year with Covid-19 impacts, making the existing workforce and value-add apartment opportunities that much cheaper in comparison.

• It’s difficult to see interest rates rising more than 50-75 bps anytime soon.

Some longer-term risks exist, and these mainly revolve around:

• “Cancel Rent” and other political movements that can impact landlords’ ability to operate.

• Eviction moratoriums and other legally contestable policies.

• Rent control laws that restrict returns on property investment and weaken property owners’ rights.

• The tremendous growth in expenses, including property tax, insurance and labor expenses.

Several of these risks are found in greater concentrations in places like California, Oregon, Washington and New York, and much less so in Texas, Florida, North Carolina, South Carolina and Georgia. It’s not surprising that investment dollars have been flowing toward the Sunbelt states.

Given the tremendous changes brought about by the Covid-19 pandemic, investors and operators both have the opportunity to assess where things stand in relation to current trends. Do you have enough exposure to real estate and other brick-and-mortar assets, given low yields in the marketplace and the high price of equities today? Are you optimally exposed to locations that are seeing the biggest demographic population and job growth, like those in Texas and Florida? Is your exposure between suburban and urban rightsized? Is your exposure between luxury and workforce assets appropriate?

Despite the challenges seen over the past year, we remain firm believers in the multifamily apartment sector. We’re continuing to buy apartment properties that meet our acquisition criteria and taking a disciplined and long-term approach to strategic acquisitions.

The apartment space is less efficient – and less liquid – than the stock market, but it is highly predictable and repeatable. This means you have more ability to control the results you deliver for yourself and other investors. The multifamily apartment space has shown that it is essential, and this dynamic is not going away anytime soon.

Pet Adoption Skyrockets During the Pandemic It’s Impact on Real Estate Investors

Being a pet person myself, I’ve always allowed pets (within limits) in my rental properties. And with maybe one exception, all my tenants have had pets. It’s one of the reasons people choose my rental over another. I know this because applicants tell me so.

I know the argument against allowing pets: Pets cause damage — or at least additional wear and tear — on property. And that’s true. But running a landlord business warrants evaluating the cost-benefit analysis of allowing pets. If you haven’t considered this issue since the pandemic (or ever) and simply haven’t allowed pets, it’s time to possibly reevaluate your policy — pet ownership since the coronavirus is at an all-time high.

The pet picture overall

Americans love pets. About 85 million families (67% of U.S. households) owned a pet in 2019, according to the American Pet Products Association (APPA) National Pet Owners Survey. Not surprisingly, most people own dogs and cats: 63.4 million and 42.7 million, respectively. This still leaves a sizable number of people who don’t own pets, but you can see how much landlords limit their market by having a no-pet policy.

How COVID-19 increased pet adoption

What didn’t change during the pandemic? As the country went on lockdown, people changed the way they lived their lives: They started exercising at home more (Peloton (NASDAQ: PTON) sales went through the roof — the company more than tripled its first-quarter revenue as of November 2020). And, of course, people started working from home.

Americans, used to more hustle and bustle from the gym and office, became bored and lonely while sheltering in place. Hello, pet adoption. Pets provide companionship, and in the case of dogs, get people exercising outdoors instead of a stuffy gym.

Pets, popular before the pandemic, are in even bigger demand now, as pet adoptions are up across the country. New York millennials in buildings that don’t allow pets are moving. In Ohio, Cuyahoga County’s pet adoption rates have “skyrocketed.”

How to run a cost-benefit analysis

Running a cost-benefit analysis helps business owners make decisions. Regarding pets, the way landlords can determine whether it might be worthwhile to allow tenants to have them is to determine whether you’ll miss opportunities by not allowing pets. (You will.) You should also determine whether those missed opportunities might lead to money left on the table. (They will if your rental stays vacant an extra month or two.)

My experience

Every landlord situation is different, but let’s take mine as an example. My business is single-family detached homes. With that said, my market is probably more pet-oriented than a landlord’s with rental units in buildings. So YMMV (your mileage may vary), so to speak.

Whenever I advertise a vacancy, most applicants, at least 80%, have a pet. I probably could still have a successful business if I didn’t allow pets, but there’s no way I want to limit my applicant pool by 80% or more. So I allow them. My cost (losing 80% of applicants) is too high; therefore, the benefit I get regarding the number of applications outweighs the cost of possible pet damage, of which I have a plan.

I charge pet rent, which increases the monthly rental amount for renters with pets, but this policy is actually a win-win for applicants and for me. If I didn’t charge pet rent, petless applicants (all other things being equal) would win the spot every time. But the extra money renters pay in pet rent levels the playing field.

The additional money I collect in pet rent goes to extra costs I typically incur to get the property back in shape. Case in point: Upon a recent move-out inspection, I found the tenant’s dog had chewed the windowsill. I needed to pay to have this fixed, but the extra pet rent I charged covered the repair cost.

The Millionacres bottom line

The surge in pet ownership, particularly among millennials, has led many to seek out pet-friendly rental properties. If you don’t allow pets in your rentals, it might be time to reevaluate that policy.