By Emily Koelsch
With changing economic and market conditions, some Landlords are deciding to sell their rental property with Tenants in place. There are various reasons to do this – for example, wanting to take advantage of strong markets, needing cash for other opportunities, or no longer wanting to be a Landlord.
There are some distinct advantages and disadvantages to selling a property with Tenants in place. If you decide to buy or sell a property with Tenants, you must know and respect your Tenants’ rights.
To help you do that, here’s an overview of those Tenant rights and tips for making the process go smoothly.
Notice Requirements When Selling a Property With Tenants in Place
Tenants have a right to receive an official Notice of Sale of Property. This Notice should be detailed and include specifics about when you’re putting the property on the market, the notice Tenants will receive before showings, and any other Tenant rights or responsibilities.
When drafting this Notice, look at your Lease Agreement and state laws. Some states have specific timelines for when Landlords must give notice. Additionally, good Lease Agreements include language about Notice of Sale and Notice of Showings.
Here are some tips for drafting this Notice:
- Review your Lease and make sure you comply with all terms;
- Review state and local laws to ensure compliance with all requirements;
- Include as much detail as possible;
- Tell Tenants how much Notice you must give before showings;
- Discuss the Tenants’ rights and responsibilities;
- Encourage Tenants to contact you with any questions or concerns.
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The Lease Agreement Is Enforced Even if Ownership Changes
One of the most essential things for Landlords and Tenants to understand is that a fixed-term Lease Agreement remains in effect even if ownership changes. The Lease isn’t tied to the Landlord; instead, it remains with the property and is in full effect until the end of the Lease period.
Here are some Lease-related tips when selling a property.
- Tenants are understandably anxious when they hear that their home is being sold. To ease their concerns, let them know that their Lease terms won’t change.
- A strong Lease Agreement can make your home more attractive to investors. Investors are bound by the terms of the Lease. They’ll be more comfortable with a thorough, state-specific Lease Agreement.
- To protect your Tenant, put everything in writing. For example, if the Lease doesn’t include a Pet Addendum or address pets, the new owner could tell your Tenants their pets are not allowed. Add any needed Addendums to your Lease before selling the property.
- At the end of the Lease term, Tenants are entitled to their security deposit. At the time of the sale, Landlords should transfer the deposit and any accrued interest to the new owner.
Effectively Marketing & Selling a Property With Tenants in Place
Even with proper Notice and a good Lease, it can be tricky to sell an occupied rental property. The process is stressful for Tenants and presents uncertainty for buyers. Thankfully, there are some ways to make the process go smoothly.
With that in mind, here are some tips to help you market and sell an occupied rental.
- Make sure Tenants are current on rent. If Tenants are behind, it makes your property less attractive to investors.
- Offer incentives to encourage Tenants to be cooperative during the selling process. Tenants can help by keeping the property clean, leaving during showings, and staying current on rent. To encourage cooperation, consider offering incentives like gift cards to local restaurants, a night at a hotel during an open house, or a rent discount while the house is on the market.
- Communicate well with Tenants throughout the entire process. Good communication includes coordinating showings around their schedule. Ask your Tenants when it’s convenient to show the property and, whenever possible, schedule showings during these times.
- Even if you don’t plan to sell a property, your Lease should always include language about a Landlord’s right to sell a property.
- Tenants are not required to clean or prepare the property for showings. To ensure it’s in good condition, offer to have it professionally cleaned.
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By Bradley Barth
Rental income property owners need to fully understand the Corporate Transparency Act (CTA) of 2021, a federal law that took effect on January 1, 2022. The law mandates that all “reporting companies” (LLCs, Corporations, LPs and others) must submit a report to the Financial Criminal Enforcement Network (FinCEN) of the U.S. Treasury disclosing specific information.
- THIS INFORMATION INCLUDES DETAILS ABOUT:
- Beneficial owner(s) of the reporting company.
- The individual (referred to as the “applicant“) responsible for establishing
the company by submitting its formation documents (such as articles or
a certificate of organization, articles of incorporation, or a certificate of
partnership) to a state agency, for example a Secretary of State.
WHAT IS A BENEFICIAL OWNER?
A beneficial owner is defined as an individual who, directly or indirectly, holds substantial control over the entity or owns or controls at least 25% of the entity’s ownership interests through contracts, arrangements, understandings, relationships, or other means. If your living revocable trust holds any of your properties, then a review of your trust must be done to identify “control” persons within the terms of the trust.
CORPORATE TRANSPARENCY ACT
(CTA) FINES
Beginning January 1, 2024, the Corporate Transparency Act began enforcing reporting companies to file. Failure to file a FinCEN report by the due date can result in significant fines. Specifically, FinCEN can impose a $500/day fine for each day that the Corporate Transparency Act form remains overdue. The CTA also includes provisions for criminal penalties in cases of willful violations of the law.
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ARE YOU EXEMPT?
It’s worth noting that nearly all entities formed in the U.S. fall under the category of reporting companies, regardless of their formation date. However, there are exemptions comprising entities that are not considered reporting companies and are thus not obliged to submit a FinCEN report. Certain small businesses, with fewer than 20 employees and less than $5 million in gross receipts or sales, are exempt from the reporting requirements. Additionally, certain types of entities, such as publicly traded companies, are also excluded from compliance. If your company is not exempt from the CTA, it qualifies as a reporting company and must file a FinCEN report. If you own your property in an LLC or other legal entity, you are most likely required to file the FinCEN report. If you own your property in your own name or your living trust there is another important topic to consider, which is your liability exposure. You have unlimited exposure to all of your assets from a liability at your property if you do not own your property in a proper legal structure.
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AAOA is well known for its knowledgeable and helpful customer service team. Throughout the day, they are available to answer all types of questions from AAOA members ranging from “How do I place an order?” to “Can you help me analyze this credit report?”
But one question that is particularly moving is when someone calls and says, “My parent(s) recently died and left me their apartment buildings. I need to find a new tenant and I don’t know anything about being a property manager.”
“While there are many ways to mishandle an inheritance, chief among them is a lack of preparation,” says Forbes. “Parents may spend time and money to ensure that their estate is organized properly, but those efforts may be wasted if they don’t also prepare their heirs to manage the properties they have inherited.
To empower future generations to oversee and sustain inherited wealth, it is necessary to equip them with the skills and knowledge they need to do so.” To help the next generation thrive, take the following proactive steps:
DEVELOP A PROPER ESTATE PLAN
Forbes continues, “It’s easy to neglect estate planning. Aside from the discomfort of facing your own mortality and the thought of your children navigating the world without you, estate planning can require considerable effort and expense.”
That’s probably why only 32% of Americans have created a will—and even fewer people have taken the care to construct a thoughtful estate plan. Nonetheless estate planning allows you to reduce costs and maximize the inheritance for heirs.
Leaving Real Estate in Your Will
Your last will and testament is just one section of your estate plan. It sets out how you want your assets to be distributed upon your death. You can leave real estate in your will, but there are pros and cons to doing so. When real estate is left in a will, the debt on it, i.e., any mortgages or liens, must be paid off immediately. This may or may not be financially feasible for your beneficiaries. Furthermore, if you have left the property to more than one individual, each of them owns an undivided interest in it. It is vital that you appoint a reputable sponsor to assist your heirs in building and preserving your generational wealth.
Leaving Real Estate in a Trust
Setting up a trust is another way that you can leave real estate to your heirs. A trust is a separate entity that can own real estate, which is then managed by a trustee. You can place real estate in a living trust and then act as the trustee to control and benefit from it during your lifetime. Then, upon your death, the property transfers to the beneficiaries of the trust.
Leaving Real Estate Utilizing the Deed
to others can have an impact on you as the property owner as well as your beneficiaries when you are gone. The deed gives specific rights to its parties, both in how they own the property, and, in some cases, at what point they take ownership of it.
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FAMILIARIZE YOUR HEIRS WITH YOUR PROPERTIES
Once you have created your estate plan, it is time to tell your heirs about the details and what is expected of them when they inherit your multifamily properties. You have worked hard to build your portfolio and you want to be assured that it will continue to flourish once you’re gone.
Review Your Holdings and Your Plans for Them
Even if your heirs have visited your investment properties over the years, it is quite another thing to see them through the eyes of a future landlord. Visit the properties with them, introduce them to your tenants and give them as much information as possible about the building as you can, including procedures, problems, maintenance issues, etc. Set up a meeting with your property manager if you have one.
Introduce Your Team
Of course, your heirs would assume that you have an accountant, attorneys and real estate agents to support your financial needs. This is a good time to introduce these experts to those who will be inheriting your multifamily property. Your heirs should also meet your maintenance team, gardener and anyone else who helps you keep your holdings in good shape. When it comes time to replace a tenant, your heirs need to know how to find someone new. In addition to telling them where and how to publicize a vacancy and how to prepare it for a new tenant, they should have your username and password for your AAOA member account. AAOA is a very important part of your team and is ready to help your heirs through the process of ordering a tenant credit check and a tenant screening report and helping them analyze the results
CONCLUSION
It is smart to discuss your wishes with your family in advance, so there are no surprises and everyone is on the same page. It will benefit both the heirs and the property’s tenants and employees. And you can be comforted by the fact that your legacy will continue to flourish according to your wishes.
NANCY ABRAMS, Assistant Editor American Apartment Owners Association
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So, a few years ago we bought a 4-plex that was located within the confines of an HOA or Homeowners Association.
And the numbers worked, so that was great,
And we were told that they handle a lot of the landscaping and care for the parking and deal with all the trash again, which was great.
But we made a crucial mistake and did not thoroughly read the bylaws, which is all on us. There was one item in there that made a really big difference on how well this new purchase would play out.
So, this week on the podcast, we are talking all about what it means to own a rental property within an HOA.
There are several pros and cons to Homeowners Associations. Some aspects can be fantastic when owning a rental governed by them and others can really affect the value of your rental and the ability to rent it.
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By Grant Brissey
From budget-friendly rentals to pet-friendly policies, these home characteristics are among top priorities for future tenants.
What can you do to minimize vacancies? The first step is knowing what features renters want. Then, identify which of those features your property offers and highlight them in your listings. Our survey data from the Zillow Consumer Housing Trends Report shows that renters are pretty specific about what impacts their home decision. If your property can boast any of these most-desired features, make sure to call them out in your listings.
More so now than ever, affordability is key.
1. Staying within budget
Hands down, rent prices that keep them on budget is the top concern for most renters: 80% say it’s highly important.
2. Pet-friendly policies
Lots of renters acquired pets during the pandemic. Since 2018, the percentage of renter households that reported owning a dog has risen to more than a third, and those reporting a cat rose to almost 30%. Overall, 59% of renters in 2022 reported having at least one pet, up from 46% in 2018. Breed restrictions, whose efficacy has been questioned, may be barring a cohort of high-quality tenants.
3. Online rent payment
Demand for online rent payment capabilities has steadily grown over the last few years. In spring of 2019, 57% of renters said they’d prefer to pay rent online. By summer of 2022, that percentage had increased to 68%. Meanwhile, only 56% of renters reported having the ability to pay rent online in 2022.
4. Cost-saving amenities
Shared amenity features have taken a backseat to affordability issues for many renters. Emphasize the cost-saving factor instead. Remind tenants that a community gym means they’re saving money on membership at the fitness center down the street. A rooftop deck or garden space means they can entertain instead of going out. Appealing to the ways your property can help reduce their spend in other areas of their life could increase your perceived value.
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5. A walkable neighborhood
With outdoor spaces among the safest spots to gather over the last two years, it’s no surprise to see that 57% of recent renters valued a walkable neighborhood when searching for an apartment.
6. A short commute time
How Americans work has changed since 2018, but the desire to be close to work or school has remained fairly constant. 56% of renters surveyed in 2022 said their commute to work or school was highly important, similar to 58% in 2018.
7. Number of bedrooms
Also important to renters is finding a place that has their preferred number of bedrooms. A full 68% of renters say this is at least a very important factor in finding the right place to live.
8. Layout
Having their preferred floor plan or layout is highly important for 48% of all renters. It may be that after a few years of increased indoor time with family or roommates, the right number of walls and doors is now a growing concern.
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In People vs. Commons West, LLC, the Cortland County New York Supreme Court ruled the New York Source of Income Antidiscrimination statute (“SOIA”) to be unconstitutional. The New York Human Rights Law (Executive Law article 15) was amended in April 2019 to make it an unlawful discriminatory practice to refuse to rent or lease housing accommodations to any person, or group of persons, based on their “lawful source of income “
As defined in the Human Rights Law, “lawful source of income” specifically includes “any form of federal, state, or local public assistance or housing assistance including … section 8 vouchers … whether or not such income or credit is paid or attributed directly to a landlord” Pursuant to section 8 of the United States Housing Act of 1937, the federal government operates the Housing Choice Voucher Program that provides housing assistance to eligible low-income families by giving subsidies to landlords who rent apartments to them
Respondents own and operate numerous residential rental properties in the City of Ithaca. The New York State Attorney General (“NYSAG”) commenced a proceeding alleging that respondents’ refusal to participate in Section 8 constitutes impermissible source of income discrimination in violation of the Human Rights Law, and seeking (1) a permanent injunction enjoining respondents from refusing to rent or lease apartments to recipients of Section 8 housing assistance; (2) restitution for consumers injured by respondents’ conduct; and (3) the imposition of penalties and costs. Respondents moved to dismiss the petition or alternatively, for an order granting discovery.
Respondents first contend that SOIA is unconstitutional because it compels landlords to participate in Section 8 — which is a voluntary program under federal law — thereby impermissibly requiring landlords to waive their rights under the Fourth Amendment of the US Constitution. A landlord cannot accept a Section 8 housing voucher as payment for rent without agreeing to participate in Section 8 by entering into a Housing Assistance Payment (“HAP”) contract with a Public Housing Agency (“PHA”) .The HAP contract must be in the form required by the Department of Housing and Urban Development.
The HAP contract requires a participating landlord to consent to inspection of “the contract unit and premises at such times as the PHA determines necessary,” and to provide the PHA, the Department of Housing and Urban Development, and the Comptroller General of the United States “full and free access to the contract unit and the premises, and to all accounts and other records of the owner that are relevant to the HAP contract,” which includes access to “any computers, equipment or facilities containing such records”.
The “premises” are “[t]he building or complex in which the contract unit is located, including common areas and grounds”. Respondents contend, therefore, that SOIA violates a property owner’s Fourth Amendment rights by giving the owner no choice but to consent to these inspections by entering into a HAP contract.
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NYSAG agrees that Section 8 is a voluntary program, but contends that the Human Rights Law does not mandate participation in Section 8 because the law “merely prohibits [respondents] from denying an applicant for an apartment based on their source of income, which includes Section 8 vouchers”
In 1967, the United States Supreme Court established the principle that administrative searches of buildings to ensure compliance with a municipal housing code are significant intrusions upon the interests protected by the Fourth Amendment The New York Court of Appeals specifically held that laws which authorize inspections of residential rental properties without either the consent of the owner or a valid search warrant violate the Fourth Amendment, and specifically noted that a property owner cannot be indirectly compelled to consent to a search.
The court ruled that the NYAG’s argument is fundamentally flawed for the simple reason that, a landlord cannot accept a Section 8 housing voucher as payment for rent without agreeing to participate in Section 8, which, in turn, requires that the landlord authorize warrantless searches of the rental property and the landlord’s records. The NY Appellate Division has expressly held that similar SOIA statutes adopted by municipalities prior to the April 2019 amendment of the Human Rights Law required a landlord to accept Section 8 vouchers, effectively compelling the landlord’s participation in the otherwise voluntary program Thus, although Section 8 is a voluntary program at the federal level, the source of income protections provided by the Human Rights Law would necessarily compel a landlord to participate in Section 8 to obtain reasonable rent for an apartment rented or leased to a person who is eligible to receive Section 8 assistance.
A law may not coerce property owners into consenting to warrantless inspections in derogation of their constitutional rights by conditioning their ability to rent real property on providing such consent, which is precisely the effect of the source of income antidiscrimination statute. Thus, by requiring landlords to accept Section 8 vouchers, SOIA necessarily compels landlords to consent to warrantless searches of their properties, in violation of the Fourth Amendment.
Similarly, SOIA further violates the Fourth Amendment by compelling landlords to consent to warrantless searches of their records. The NYSAG has not identified any law or regulation requiring respondents to maintain specific business records, and renting residential, Accordingly, SOIA is unconstitutional to the extent that it makes it an unlawful discriminatory practice to refuse to rent or lease housing accommodations to any person, or group of persons, because their source of income includes Section 8 vouchers.
Based on the foregoing, respondents’ motion to dismiss was granted, and the NYSAG’s petition was dismissed, with prejudice.
Source: Friedman & Ranzenhofer
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By Jason Sorens
The Washington State House has passed a bill to cap rent increases at 7 percent a year. The Senate has yet to vote on it, and the governor has not taken a position. If enacted, this law would hurt renters, including low-income renters.
Advocates of the legislation call it “rent stabilization” rather than “rent control,” because “rent control” has gotten a bad name over the years (and for good reason). But in practice, it works the same way.
Capping rents means lots of people will want to rent at the capped rate, but fewer units will be available to rent, creating a shortage. After all, owners of apartment buildings can put their units to alternative uses, selling them off as condos, converting them to office spaces, occupying the units themselves, or simply leaving them vacant.
In the long run, rent caps encourage apartment owners to skimp on maintenance as well. So fewer units are available, and they are of lower quality
The Washington legislation exempts apartments built in the past 10 years. But the law could still discourage new apartment construction. After all, builders have to keep in mind the possibility that 10 or 15 years from now, those new units themselves will be added to rent stabilization. This is precisely what has happened in New York over and over again.
Once a place adopts rent caps, it’s very hard to un-ring the bell and make investors feel safe again about building new apartments.
Advocates of rent stabilization say that “vacancy decontrol” — letting rents adjust when a tenant moves out — makes the legislation less harmful. But rent stabilization makes tenants less likely to want to move out. That makes it harder for young people and workers moving to an area to find a place to rent, and keeps people locked into locations where it might not make sense for them to live anymore.
In markets that have had rent caps for many years, there’s even a well-known scam, described in Tom Wolfe’s Bonfire of the Vanities, whereby a renter pretends to still occupy a unit, while subletting it to someone else, to avoid vacancy decontrol.
Advocates of rent stabilization also say that a high rent cap, like one that limits a one-year increase to 7 percent, is less harmful than traditional rent control. But it’s no defense of a policy that it might cause only a little harm. And in any case, a 7-percent cap could cause a lot of harm.
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Why might a housing provider need to raise rent more than 7 percent in a year?
First, inflation might run above that rate. We just went through a year in which inflation topped 9 percent. It could happen again.
Second, even if inflation doesn’t run that high, rent inflation could run that high if land-use regulations have choked off housing supply and demand is growing. Again, the recent pandemic is a case in point: Americans’ demand for housing went up because people were spending more time at home, but a lot of places did not let property owners build lots of new units. Last year, annual rent growth topped 10 percent in several markets that have limited the supply of new homes.
Third, repairs and renovations can be costly for housing providers, and the value of these improvements, especially after a tenant has stayed several years and if building codes change, could justify a rent increase of much more than 7 percent.
Fourth, the city of Seattle requires a court order to evict a tenant. For instance, if the tenant is involved in drug activity, the housing provider has to prove it in court. But a housing provider might prefer not to get the police involved. Sometimes a rent increase is the only realistic way to get rid of a problem tenant. In this way, just-cause eviction laws and rent stabilization laws interact to make it extremely difficult to remove tenants who are damaging the property, annoying their neighbors, or engaging in illegal activity.
The economic research on rent caps shows unequivocally very large economic losses, even for tenants of those units themselves. A recent study of San Francisco rent caps shows that after adoption, corporate housing providers reduced supply by 64 percent, while individuals reduced supply by 14 percent. Perhaps the definitive study of the welfare effects of rent control in New York, published in Journal of Urban Economics, found that even tenants in rent-capped units suffered from the policy.
Thus, it’s no surprise that only 2 percent of top economists agree that “ordinances that limit rent increases for some rental housing units, such as in New York and San Francisco, have had a positive impact over the past three decades on the amount and quality of broadly affordable rental housing,” while 81 percent disagree.
Rent caps also have unintended consequences in other markets. Rent caps reduce the value of multifamily properties, because owners and investors expect to earn less. In New York, a recent tightening of “rent stabilization” drove down multifamily properties’ values by more than 30 percent, leaving some housing providers with negative equity and encouraging foreclosure. As a result, a major housing lender has incurred large losses, and investors are worried it could go bankrupt.
Instead of rent caps, cities and states can make housing affordable by letting people build more of it. That’s just what has happened in the last year in several Sunbelt markets. Investors are even complaining that multifamily has a “supply problem,” meaning too much supply, resulting in rent declines.
Just about the worst way to “help” renters is by punishing property owners for providing rental housing, which is just what rent caps do, regardless of whether they call them “rent control” or “rent stabilization.”
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So, this subject might seem obvious to those landlords who are a bit more established but for those newbies out there, this one’s for you!
House rules are your regulations and guidelines that need to be noted within your lease to protect you and your tenants by establishing clear expectations between all parties involved.
Because believe it or not, tenants do need these guidelines to ensure a peaceful living environment and experience for themselves and any other tenants in the property.
And we wholeheartedly agree that house rules define the expectations you have for your tenants when it comes to responsibility, respect, and behavior.
Essentially, you are creating boundaries to minimize any issues or disagreements that may arise down the line.
For us, many of the rules we are talking about today are a bit obvious. However, for many of you, your own rules likely will arise from errors in judgement or prior lack of detail that led you to a place of frustration.
So, check out what we feel is important to know about house rules and see if you need to make any changes to your own!
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Partnering with a local utility provider can help increase energy efficiency, streamline operations, and reduce resident turnover.
While amenities have been a popular way to attract prospective residents of multifamily properties, some of today’s most important features, including those focused on health, energy efficiency, and proptech, can make all the difference.
And there is a huge opportunity to meet these growing resident demands. According to the American Council for an Energy-Efficient Economy, the potential exists to improve the energy efficiency of U.S. multifamily properties by 15% to 20% and save $3.4 billion in utility costs.
Save Energy and Reduce a Property’s Carbon Footprint
According to the 2022 National Multifamily Housing Council/Grace Hill Renter Preferences Survey Report, about 2 out of 3 renters say smart thermostats and water-saving systems are essential, and that energy-efficient appliances, enhanced indoor air quality, and healthy building certifications sway their decisions to lease.
Keeping up with these growing demands from residents for sustainable and proptech solutions can be tough, especially when budgets are slim and buildings are older. However, there are helpful programs, rebates, and energy assessments offered from local clean energy providers like National Grid.
With programs and incentives designed for property managers to meet the needs of air sealing, LED lighting, Wi-Fi thermostats, heat pumps, low-flow showerheads, and more, National Grid helps their customers transform buildings into smarter, lower energy-consuming high-occupancy properties.
For example, Selah Realty wanted to reduce the natural gas consumption for water heating at a multifamily dwelling in Brooklyn, New York. With the help from National Grid’s Direct Install program, they installed low-flow showerheads, faucet aerators, and thermostatic radiator valves, and reduced use by up to 30% with an annual estimated savings of 16%.
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Improve Resident Experience
The worry about how a home can negatively affect health is real, with 54% of renter households reporting concerns about indoor air quality, according to Harvard Joint Center for Housing Studies-The Farnsworth Group Healthy Homes Surveys. (And this concern isn’t just because of the COVID-19 pandemic, as indoor air quality was the greatest area of concern in the group’s 2018 survey.)
In addition, nearly 2 out of 3 Gen Z renters say apartment technology—smart locks, solar-powered systems, smart thermostats—is extremely important, according to ButterflyMX. Plus, 40% say they won’t rent a property if it doesn’t have green practices, according to MRI Software.
Streamline Property Operations
Years ago, Fannie Mae released a study that showed efficient properties spent an average of $165,000 less in annual energy costs, and that median energy use was higher when owners paid for all energy costs. With the recent rise in fuel costs, those numbers haven’t improved for property owners. And, just in the two years from 2020 to 2022, total operating expenses have increased 13% for multifamily properties.
With so much pressure to upgrade to smart systems, budgets are strapped for many. By taking advantage of energy assessments and rebates from a local utility provider like National Grid, not only will the future annual energy consumption be reduced, property management staff can save time—another crucial competitive advantage.
Any extra time that property managers can spend on residents may be the best way to retain them, with a great property manager being the biggest reason why renters renew leases. According to an AppFolio report, 57% report it’s the main reason why they would renew. Plus, 2 out of 3 potential renters say that the property manager’s reputation is important when evaluating a potential property.
By delivering the desired proptech, energy-efficient, and health-focused amenities—and taking the time to connect with those residents—multifamily property managers will be in a stronger competitive position to attract and retain their residents in the future.
Source: Multifamily Executive
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- Generation Z, the only renter-majority generation, eclipsed 5 million households in 2022 and will become the largest renter demographic by 2030.
- Gen Z faces more significant barriers to homeownership than their parents did, including elevated interest rates, a higher cost of living, and a limited supply of quality housing.
- One in three Gen Z adults say that homeownership at any point seems to be financially out of reach.
Gen Z Grows Up and Moves Out
Generation Z, a demographic age group of Americans born between 1997 and 2012, includes about 20% of the population, or 68 million members. As they grow up, the members of Gen Z are beginning to move out on their own and form new households. In 2022, there were 5.4 million households of Gen Z renters in the U.S. By 2030, Gen Z is expected to become the largest demographic of renters in America.
In 2022, Gen Z, not all of whom are of working age, made up 12.8% of the total U.S. workforce. But, Gen Z is on pace to outnumber baby boomers among full-time workers by the end of this year, Glassdoor projects.
However, many in Gen Z are rent-burdened and believe homeownership may not be in their future. With an average individual salary of $33,800 per year, many live paycheck-to-paycheck. A 2022 Freddie Mac survey found that about one-third of Gen Z felt that owning a home would not be possible in their lifetimes, up from 27% in 2019.
Sometimes called Zoomers, Gen Z is interacting differently with the rental market than millennials. They tend to be more interested in personal fulfillment and happiness rather than wealth and influence. Bucking a long-standing trend, these young adults have been opting for more space and lower-cost housing located outside of cities.
Zoomers Face Bigger Barriers to Homeownership
As the members of Gen Z reach adulthood, they enter a housing market that has changed considerably since their parents first bought a home.
Elevated interest rates: Since 2022, the Federal Reserve has raised the federal funds rate 11 times to tame inflation. In January 2024, the interest rate on a 30-year fixed-rate mortgage averaged 7.22%, up from near-zero in March 2022 yet below the average rate over the last 40 years.
Higher cost of living: From 1999 to 2022, the average price of rent in the U.S. spiked 135%, while average income increased 77%, according to Moody’s Analytics CRE.
Low supply: Currently, the U.S. has a deficit of about 3.2 million homes.
Higher housing price points: The average new home mortgage payment is 52% higher than the average rent on an apartment, which is higher than at any point since at least 1996.
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Gen Z Sees Renting as an Attractive Option
Today, one in three Gen Z adults believe homeownership is not attainable in the future. But it doesn’t seem to be phasing them. They show high rates of satisfaction with renting. More than three-fourths of those surveyed by Freddie Mac said flexibility was a key benefit of renting, while 63% cited how it can be less stressful than homeownership. Other survey respondents mentioned how renting offers the opportunity to live in attractive locations where the cost of owning a home is high.
Interested in personal fulfillment, Gen Z values the flexibility and reduced responsibilities central to the renting lifestyle, giving them a greater ability to pursue their passions.
The Outlook
As many Americans delay homeownership, Generation Z is embracing renting as a lifestyle choice and the commercial real estate industry has taken notice. In communities across the country, new single-family rental and build-to-rent communities are being built with features attractive to young people, including high-speed internet connections, green spaces, and dog parks, which aim to improve tenant retention and ultimately strengthen the rental housing market’s supportive tailwinds.
Source: Arbor
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