Inside the Mind of the Millennial Landlord
- Sep 28, 2018
With Millennials now making up the largest share of homebuyers in the U.S., according to the National Association of Realtors, a growing number are purchasing additional properties to operate as rentals. These assets include single-family homes as well as multifamily communities. While there has been significant discussion around the demands of Millennial renters, the profile of Gen Y landlords is often overlooked.
In an interview with Multi-Housing News, Lukas Krause, president of Real Property Management, discusses how Millennial landlords differ in their approach to real estate investment.
What kind of properties do Millennials prefer when it comes to making a purchase?
Krause: The market data that Real Property Management has been tracking indicates the majority of Millennials, about 50 percent, are opting to invest in properties within suburban areas. (Another) 25 percent of Millennials tend to gravitate toward urban core areas, with the remainder falling outside these two categories, which would include rural areas and smaller towns. Millennials more often look for communal amenities typically offered in newer complexes, such as indoor fitness centers, clubhouses, parks, pools, laundry units and business centers when making a purchasing decision.
How does the increasing number of Millennial investors impact the industry?
Krause: As Millennials have entered the market, the purchasing process has evolved significantly. Millennials seek frictionless digital experiences using their mobile devices to discover, view, evaluate and transact business. If a site takes more than three seconds to load, half exit out. Millennials also consider a significantly greater number of options before making a purchasing decision, whether it’s a property to purchase or a company to provide services before or after purchase.
What are some of the costliest mistakes or oversights first-time Millennial landlords tend to make?
Krause: Managing a rental property well takes training and experience. Without the proper expertise, Millennial landlords may suffer from costly mistakes. Real Property Management has more than 30 years of experience in our industry, and we see that Millennial landlords continue to make the same common mistakes:
- Failure to screen tenants: Properly screening tenants is critical to the optimal financial success of a landlord. We often see properties where applicants have not had a credit check and no job verification has been made. Millennial landlords often want to fill a vacancy quickly. However, this can cost them in the long run if they shortcut the screening process. A thorough screening will ensure that tenants will pay rent on time and become a reliable tenant. Real Property Management advises property managers to look for any negative trends in the credit history. Verifying employment is also recommended—obtain a copy of an applicant’s most recent pay stub or use other income verification procedures from an outside source. Have a verification release signed by the potential renter to obtain information from employers and past landlords, and then follow up.
- Failure to evaluate whether high-dollar upgrades result in increased rental income: Millennial landlords, as well as other new landlords, often pay more attention to expensive cosmetic home features such as stone countertops, stainless appliances, premium carpet and flooring or even electric car chargers. These may not translate to increased rental income.
- Failure to understand the importance of maintaining structural features: Lack of experience sometimes results in ignoring the maintenance of important structural features such as roof, gutters, plumbing or electrical systems and can cost you long-term. Failing to address maintenance issues could potentially lead to a big and expensive problem. If you want to ensure your rental property’s value and increase your overall success and profitability, it’s imperative to never stop maintaining and improving. Tenants will appreciate a landlord who is respectful of their time by getting repairs done quickly. Staying on top of maintenance also shows the tenant the type of condition you expect the property to be in when they move out.
- Failure to enforce the lease, over occupancy: Millennial landlords often find it difficult to gauge how well residents are complying with their leases. Even if terms and conditions are clearly spelled out, several aspects of lease enforcement are often more trouble than others. One of these is the issue of occupancy. Upon signing the lease, landlords should request residents provide information about everyone who will be occupying the home. By clarifying who will live in the home, Millennial landlords can point to documentation when correcting a problem after violations occur.
How can these problems be most effectively managed?
Krause: It is important to pay attention to ever-changing trends in design, home features and amenities if you want to stay competitive. However, be sure to analyze if making changes will translate to increased income. Sometimes, changes are required to compete in the marketplace, and they may not translate to higher rents. Build a spreadsheet and properly run and access the numbers. In addition, Millennial landlords should seek out advice from experienced landlords or consult with professionals such as attorneys with experience in landlord-tenant and investment property laws, as well as a licensed property manager to ensure you are covering your bases and not dealing with unnecessary risk with your investment property.
What advantages can a Millennial-owned asset have compared to the portfolio of a seasoned owner?
Krause: Millennial rental property owners often tend to prioritize location-based amenities, such as ensuring coffee shops, restaurants, parks and shopping centers are all in close proximity. This is a huge perk as they understand the needs of modern Americans, especially when it comes to convenience. In addition, Millennials are much more in sync with the ever-changing digital landscape. Their technology-savvy skills help when marketing their properties as well as managing their properties using the platforms and apps found in the marketplace.
What advice would you give to a Millennial investor prior to acquiring a multifamily property?
Krause: It is important to determine who your renters are going to be, whether they are students, young families, retirees, singles or couples, and how that aligns with your investment goals. It is vital to not only identify your prospective tenants, but to also research them, the neighborhoods in which they live, the types of properties they want and what features to focus on to ultimately attract them and fit your goals. After doing so, be sure to construct your ROI and plan based on the results of your research and findings.
What kind of upgrades or renovations are the key to a successful value-add strategy?
Krause: Knowing when to spend money will eventually make you money. This is why it is important to consider what capital improvements your rental property may need to help to improve your bottom line. Laundry facilities should be a number one priority, whether available in the unit or on-site. Storage is also among the top priorities for renters. Some strategies for boosting storage include adding hooks to entryways and bathrooms, installing closet organizing systems and adding additional shelving in a pantry or the garage.
It is also important to ensure ease of using electronics, by ensuring USB outlets are in fixtures with plenty of power outlets. In addition, it is key to have satellite, cable and wireless capabilities for tenant accessibility. Fitness and business concierge facilities are also a huge advantage to prospective tenants, and finally, never underestimate the power of allowing pets. As a rental property owner, it is important to understand that pets can mean a great deal to your renters.
Image courtesy of Real Property Management