Renter Nation Trends & How Rental Owners Can Use Them for More Profit

The Trends

No doubt most landlords have read the headlines regarding the record number of renters in the US these days. Well for our local markets, things are no different. As a result of this massive shift in habits, it stands to reason that landlords and property managers alike could glean great insights that may give them an edge over their competitors. While the rental market is strong and healthy, it’s still quite competitive out there, and minor adjustments can have a BIG impact on a rental investor’s bottom line profitability.
When we’re asked if the rental market is strong, we always have the same response. The rental market is strong and very fluid these days, meaning you have a lot of supply AND a lot of demand. Whether it’s landlords selling, or renters moving, investment properties tend to change hands a lot these days. Renters tend to move much more often than in the past, likely because they usually have a lot of great properties to choose from if the one they’re currently in doesn’t meet their needs. So while there is no shortage of tenants, it’s easy for a landlord or property manager’s marketing to fall through the many cracks, and lead to long vacancy or mistakes in tenant selection.

What are the renter nation trends?
The majority of major cities in America now have more renters than occupied homeowners
Tenants are moving much more often than in the past
Overall tenant credit quality is much lower than 2008-2014 since best quality renters are buying more
Skyrocketing rents (as well as healthcare and student loans) are putting a serious burden particularly on lifelong renters and younger generations who tend to own very few assets and therefore have not benefitted from the recent recovery, older generations who are on fixed incomes and have been brutalized by ultra-low interest rates, and those who move frequently for various reasons such as career needs
Due to this increasing burden, it’s unlikely most of these people will be capable of saving for a down payment and becoming homeowners
Leasing habits are tending to homogenize, with the vast majority of new leasees needing to give their current landlord at least 30 days notice, most move at the end of the month, most move in summer, and most rent payment issues tend to happen in July, and December / January
In an upcoming series we’ll discuss the challenges facing renters these days and going forward. For this article we’re going to focus more so on the herd mentality that has clearly taken shape over the past few years, and how landlords can harness this to their advantage.

To put it in perspective, the rental market now acts a lot more like a herd of buffalo than a bee hive. What we mean by past renter habits resembling a beehive is that at any time of the month or year (to a degree but not entirely) renters may be coming or going for various reasons, similar to how a bee hive is constantly working on hundreds of tasks at any moment, and opposed to a herd of animals who are typically all looking for little more than to graze, or elude predators. In the past primarily life events led many to become renters, whereas now most have been renters for some time and it’s second nature. Winters have always been slower, but in the past it was more subtle than today. These days renters tend to move in massive herds with the vast majority moving in the warmer months and on the 31st or 1st, with July 31st being by far the busiest period of the year in our experience.

What does this mean for landlords?
Most tenants must give at least 30 days notice before they can move into your rental
Most leases at least for NC, require a tenant to give their notice to vacate from term to term, which is from the first to last day of the month for the vast majority of renters. This means that their required notice doesn’t begin to count down until the 1st of the new month. To demonstrate what this means consider this fictional case…

property management in wilmington nc Jane’s rent is due on the first. She is currently on a month to month agreement (her term), and her lease states that notice to vacate is on a term to term basis. Since she pays on the first, her term begins on the first, and any notice to vacate would begin then too, no sooner. This means that even if she gives her notice on the 5th, technically her notice doesn’t actually begin until the new term starts on the first of the upcoming month, at which point she is liable for 30 more days. So in this scenario Jane is actually required to keep rent paid for nearly two months. If she had given her notice on the 28th, she would typically only pay an additional 2-3 days before her 30-day notice begins. Here is the exact wording from the standard NC lease used by the vast majority of professionals

(EXAMPLE: Assume tenancy is a calendar month-to-month tenancy and 30 days advance written notice of
termination is required. Tenant desires to terminate lease as the end of the April period of the tenancy. Tenant would be required to
give landlord written notice no later than March 31st. If the written notice of termination were to be given to the Landlord on the 10th
of April, the notice would be effective to terminate the lease at the end of May rather than the end of April, since the monthly periods of
the tenancy expire on the last day of the month and the notice was not given 30 days prior to the end of April.)

This problem of longer notices is a challenge for landlords and managers. While the rental market is strong, the extended time from lease signing to actual move in makes it tough to gain the full benefits. Many managers advertise a management fee discount if a home isn’t rented in 30 days, but should this be considered a win if the tenant isn’t moving for 75+ days, which is when you would begin collecting rent?

Particularly on marginal locations or properties, 75 days isn’t half bad as we still get calls every week from landlords who have had to deal with several months of vacancy (no rental income while expenses continue to roll in). However we’re obsessive about providing excellent results over the long term, so we began to ask ourselves, how can this new trend benefit us and our customers? We cover this a little ways down.

Another symptom of renter nation is the fact that so many tenants move at the end of the month. For owners with multiple properties in particular, when the end of the month requires you to handle all the following tasks in the span of about one week, it can quickly become a costly nightmare either in terms of lost income, higher than necessary expenses, or flat out squandered opportunities.

  • Move out inspections
  • Collect repair quotes
  • Oversee repairs
  • Continue to show active rentals
  • Confirm leases
  • Collect move in funds
  • Move in inspections
  • Move in repairs
  • Collect and disburse rents
  • Return security deposits
  • List newly vacated properties

In rental management, the turn of the month has always been hectic, but these days it’s much worse than ever before, and these are only a few of the tasks that tend to come due all in the span of just one week. You may be asking yourself, what if I rent my properties long before the current tenant moves out? This is a phenomenal solution, and one that has served us extremely well. However you still have the log jam of dealing with repairs / turnovers while contractors are already very busy, as well as the fact that many managers and landlords don’t have the marketing machine that we do, and this option isn’t always available. Even for us, how neat and tidy a current tenant has been can be a huge wild card in how easy it is to rent the home while still occupied, and you want to account for challenges in advance. Furthermore, do you want to know what makes the tasks above particularly difficult? Having one tenant vacate on the 31st, and a new move in on the 1st. For many landlords and even managers, this simply isn’t possible, and you often end up having to push the new move back an entire month (as well as income) while you turn the property over.

Building on the problem above, we also noted that most renters these days move in the warmer months of May – August. There are a multitude of reasons for this which we have discussed in past articles, but for this article you simply need to be aware that this period of the year in our experience sees twice as many turnovers as other months. In our case, we go to great lengths to group move outs during this period to take advantage of the much stronger environment, and we discuss the importance of timing leases properly in depth here… As you can imagine a trend where tenants mostly move at the turn of warmer months can create a serious challenge for landlords who own multiple properties.

In addition, many rental investors are traveling during summer months, and handling all these move out tasks around the time of July 4th for example often results in huge delays and bad feelings with soon to be tenants. In fact, summer is full of weekend holidays that coincide with the turn of the month from Memorial Day to Labor Day. Not only are owners often traveling but a lot of vendors and tenants are as well. We have a phenomenal digital strategy so tenants don’t have to be in town to move forward to rent your property. For this reason having a professional manager can be a huge benefit and often pay for their entire year of service with excellent performance by avoiding delays, getting properties turned over much faster, and tenants in place and paying rent without delay. Did we mention that property management costs are 100% tax deductible?

What’s the solution or angle you can take to benefit or lessen the strain of these trends?
We’ve begun a process of intentionally breaking leases sometime in the middle of the month. We basically vary them anywhere from the 10th to the 25th. This approach offers a huge number of benefits.

  • Lessens strain of turn of month moving trends
  • Lessens strain of warmer month moving trends
  • Lessens strain of weekend holiday moves along the turn of the month when many tenants, rental owners, and vendors are traveling or preoccupied
  • Avoids delays caused by the logjam of issues noted above
  • Often cuts down significantly on vacancy since many of our leases are signed at the end of the month (often within 2 weeks of listing) when tenants are eager to give their landlord final notice which tends to speed up their ability to move into your home and start paying
  • Quicker turnovers lead to quicker leasing
  • Our properties are typically made available for showings on a unique schedule (usually 2 weeks sooner than average) which sets us apart from competition and gives tenants more options
  • Tends to speed up tenant decisions since they must give notice prior to the first
    Utilize digital lease signing and payment options so tenants don’t have to be in town to finalize a new lease

Most of the concepts above are blatantly obvious, but allow us to expound on #’s 5 – 9.

‘s 5, 7, 8- The rental market is a very fluid market indeed. In general, a whole new set of potential renters begin their search every 30 days. Mid-month you are often dealing with two different sets of renters. One who began their search the previous month but haven’t secured anything yet, as well as the new batch of renters looking to move in the next 60 days and just beginning their search. This makes mid month a fertile, light competition time to harvest leads and potential interest. Consider that most of our competitors are handling move outs on the 31st, and a slew of new listings tend to come available for showing in the first week of the month vying for the same set of tenants. Now consider that in our case often our properties are available for showings mid-month, 2 weeks sooner than most of our competitors, and coinciding with the fertile period where two totally different sets of tenants are eager to move forward. The first set in particular are often extremely eager to move as soon as possible, and know they must give their landlord notice before the 1st of the month. This group has been shopping for a while, know the market, and know the process well. They have also often lost a rental or two for moving too slowly, and can’t risk that happening again. Finally, they’ve already viewed most of our competitors’ stale listings, leaving ours to absorb more of their attention. Oh, and they aren’t dealing with those distracting summer holidays! These factors combine to make for an eager tenant who knows what they want and knows the value of moving quickly. They often only have to give their landlord slightly more than 30 days notice meaning they can move faster and begin paying you faster as well. So while most of our competitors have stale listings, or new listings that aren’t available for showings, we’re shuffling leads through our fresh listings like they’re grand central station.

This concept is pretty simple. Our vendors travel less mid month since most summer holidays occur at the margins.
They also tend to have less work overall as the market trend of turning properties over at the turn of the month creates a natural lull during this period. Our managers are less strained and can focus more attention on turnovers instead of collecting rent and handling maintenance requests that tend to spike around the holidays.

For self-managed investors in particular, the turn of the month can be a perfect storm making it impossible to connect with potential leads. Often they are traveling themselves, and signing a lease or collecting funds becomes substantially harder. In addition, tenants are often traveling or simply don’t live in the area. Our digital strategy completely offsets this issue as we are available and easily capable of collecting full payment, finalizing leases, and scheduling repairs from anywhere in the world for anyone in the world!

We believe savvy rental investors will immediately see the benefits of this strategy. Our hope is that the potential of these benefits won’t be lost on those who think managing themselves makes sense, or who have chosen to use a management company that doesn’t utilize fresh and unique thinking of this type. As we mentioned above in most cases our approach speeds up the process to such a degree we pay our own costs for the year while also saving you tons of time and headaches even in the best of situations. It’s when things get tough though that we usually net our owners an entire months rent they would have otherwise missed, in addition to getting top notch rental rates with AAA quality tenants.

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