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The life of a residential property is marked by the fact that it is occupied by people. Because residents add a dimension to the character of a property, it is necessary to understand the resident’s role, differentiate between the various types of residents, and apply management skills to create a property’s character through sensible resident selection.
Before discussing different types of residents, let’s address the issue of word choice: How do you identify the people who live in the properties you manage? There has been a movement to replace the word ‘tenant” with another designation such as occupant, resident, or lessee. This tendency is, in part, a response to the opinion that a tenant is a second-class citizen—a view held by many Americans in the early days of rental property. It is also an effort to dc-emphasize the financial relationship between owner and tenant (notice that I also choose to use the word “owner” rather than “landlord” because the latter seems dictatorial).
Such a negative view of tenants is obviously inaccurate; consider the fact that some of the world’s largest corporations are tenants in the premises they occupy. Nevertheless, it is important for the property manager to be aware of the sensitive nature of the word and use it with discretion— especially in conversation. This is why I have chosen to use the words “resident,” “occupant,” and “renter” with a fair degree of frequency.
The fact remains that the word “tenant” is really the only word in the English language that specifically refers to a person who gains the privilege of occupying land or a building by paying rent. After all, every tenant is a resident, but not vice versa. There are hundreds of years of landlord- tenant laws, but no owner and occupant laws. As a result, it is absolutely necessary to employ the word “tenant” in legal contexts.
There are many types of residents: singles and families, students and the elderly, never-nesters and empty-nesters, quiet and loud, more desirable and less desirable, and so forth. Since experience has demonstrated that each of the groups can be expected to behave in a certain predictable way and make certain demands, managers of residential rental properties must be able to recognize the resident types and know which ones are preferred occupants for given properties. The type of resident for which a building is designed will affect many aspects of management, including marketing, maintenance, and resident relations.
Some people may object to categorizing residents, claiming that every one is an individual human being and must be treated as such. True, residents are individuals. Still, insurance companies categorize people by height, weight, gender, medical history, occupation, etc. on the principle that groups demonstrate certain tendencies; scientists make similar generalizations when studying behavior. Property managers are justified in doing the same.
Residents can be grouped in two broad categories; namely, renters by choice and renters by circumstance. Renters by choice are likely to stay longer, cause fewer problems, and make better residents. They choose a place to be their home and back this up with commitments of money and energy.
In the other category are apartment dwellers who are not necessarily happy with renting. They accept the arrangement only as a temporary compromise until they can achieve other long-range ambitions. Frequently, the real wish of these people is to achieve the American dream — to own a home.
No doubt, the special attraction that owning real estate holds for most people reflects the common attitude of buying before all the land is “used up.” It also reflects the viewpoint that property owners are the ones who have succeeded in life. This belief has had a very compelling influence on the renter who perceives his or her present housing arrangement as a rude indication of a lack of achievement.
Many housing analysts and demographers are predicting that there will be more renters in the future. As the cost of purchasing and financing a new or existing home increases dramatically, it may well slow the transition from renter to homeowner. Renters will not lose their desire to purchase their own homes; they simply will be unable to afford them. Whether this prediction is accurate or not, there will always be a need for rental housing and managers to operate it.
Renters by Choice
Career people, settled people without children, couples whose children have grown and left home, and retired people are typically renters by choice. For some, the situation is one in which the extra space available in purchased housing is not needed. Others want the freedom provided by renting. Still others choose to rent because it is the most economical means of living in the area of their choice.
Their choice, however, is not necessarily absolute. If high-quality housing and its accompanying services are not available, renters by choice can and have been swayed to buy—particularly cooperative and condominium units where exterior maintenance is provided. Owners, and especially managers, must he alert to the fact that this resident group demands quality accommodations and will be constantly wooed by real estate brokers with housing to sell.
Still, the resident types described below have one thing in common:
They prefer to rent. Their priorities, lifestyles, and conditions of age and health are such that the desire to become homeowners is negligible, per haps entirely absent. Maybe they do not want to cut the grass. Maybe they are convinced that, in the long run, there is greater economy in renting. In any case, these renters are either satisfied with their situation or have more or less permanently resigned themselves to renting.
Empty-Nesters. Given complete freedom to select residents, an experienced property manager would try to fill all his or her units with empty-nesters. Typically, these are married couples who have raised their children—perhaps in single-family homes—and have chosen the carefree ways of apartment living. They invest in furnishings to provide comfort and convenience. They pay the rent promptly, live in peace and harmony with neighbors, and pose few management problems. As the most selective of all renters in choosing their living quarters, they insist on quality in housing, services, and management. Before renting they shop around, since they are looking for accommodations that will remain satisfactory for the long run.
Empty-nesters make up a steadily increasing segment of the prospective resident market. Unfortunately for the property manager, many empty-nesters are buying townhouses, coach houses, manor houses, and condominiums rather than renting. They have learned to enjoy the value appreciation and the tax benefits of owning, and they regard ownership as the preferred alternative. Nevertheless, empty-nesters represent an important segment of the market — not all empty-nesters are buyers, and those who do choose to rent are the best possible renters.
Career People. Next in terms of resident desirability are established career people whose numbers are also increasing. These people can be single men and women or childless couples. A relatively homogeneous group, their lifestyle is career-oriented. They have chosen to be renters rather than homeowners. The character of their homes is important to them and to their small circle of close friends. They tend to choose smaller apartments in established neighborhoods that are convenient to work and entertainment activities. Because of their career orientation, these residents may move from time to time, so their occupancy does not offer the same stability that empty-nesters provide to management.
Senior Citizens. Senior citizens — married and unmarried — who have regular retirement benefits are also a favorite resident type. This group tends to make little noise, pay bills promptly, and keep their homes clean. Such people are also inclined to choose small apartments, especially when they are constrained by fixed, inflation-eroded incomes. Budgetary limitations may keep senior citizens from living in preferred neighbor hoods; still, they will be discriminating about finding a place where basic daily needs can be met. It is true that the medical problems associated with advancing age may present some management problems. Beyond that, senior citizens form a most desirable segment of the market.
Renters by Circumstance
Offsetting renters by choice are those residents who rent because of their current circumstances. A student attending college away from home, for example, needs temporary housing. Many young families want a place to live until they can save enough money to make a down payment on a home, and singles who anticipate being married someday often do not want to be tied down to a house. In each of these cases, rental housing is occupied on an interim basis. Decisions about ultimate living arrangements are still to be made. Because of the temporary aspect of the choice to rent, there is a reluctance to commit time, money, and energy to create a home-like environment. When rental units are occupied without an ongoing commitment, management problems increase dramatically.
From management’s point of view, the desirability of different groups of residents by circumstance is measured by the duration of occupancy and the absence of the costly problems such tenants often present. After all, with good service, renters by circumstance may be transformed into more permanent renters by choice. Every time the need to re-rent is avoided, net operating income increases.
Families with Children. Families with children make up a substantial part of the rental market. This becomes increasingly true when the cost of buying and maintaining a single-family home is rising faster than most families’ ability to meet these expenses. Renting often becomes the interim solution while a family postpones their goal of homeownership.
Families with children are less mobile than other residents, meaning that the need to deal with move-outs will be minimized. Also, the rate of skip-outs (residents who leave without paying rent) tends to be lower with families. With a creative management program that channels the energies of youngsters in nondestructive directions, a property manager can take advantage of the relative stability of this segment of the market.
Families with children maybe renters by circumstance, but there are a lot of them, and they are good residents in many cases. You should be reminded that The Fair Housing Amendments Act of 1988 included an amendment that prohibits discrimination based on familial status (the only exceptions are made for housing that satisfies specific requirements for older persons). Thus, it is not merely prudent to consider including families with children in your development, it is required by law.
One-and Two-Person Households. The people in these two categories represent the vast majority of all renters. In fact, single people living alone account for 25 percent of all households—it’s the fastest growing segment of our population. Couples, either married or living together, are the largest single household grouping. Both of these groups are maturing, with an average age well into the thirties. As these groups age, their life styles will mellow, their possessions will grow in number, and their abilities to discern quality accommodations will sharpen. Most rental developments focus their advertising and marketing efforts directly toward this audience. New appointments, features, services, and amenities are offered to attract people who have more money to spend on rent, are concerned about health and fitness, and have limited extra time.
A substantial number of these people will not become homeowners; renting will be their way of life. While these people may start out moving from one complex to another, they eventually find themselves looking for a place to call home for a number of years.
Students. The most temporary of all resident types is the student. Students come in large numbers to college towns, bringing with them few possessions and even less money. Their stay is short. This, and their lack of commitment to the place they are renting, present management problems that only those who specialize in the student market will care to face. Occupancy terms are for ten months or less. Rent collections are often challenging. Wear and tear creates enormous maintenance problems. There is also the competition to cope with, because the colleges themselves may offer lower-rent housing (e.g., dormitories, student and staff apartments, etc.). In periods of declining school enrollments, investment properties that rely on student renters are left with more and more vacancies.
The discussion of resident types so far has made no reference to income. It is a sensitive subject, and one I will address in more detail in later when I discuss setting and raising rents. One fact is clear: Managing housing for low-income residents is different from and can be more demanding than managing apartments occupied by those more able to afford housing. It is beyond the scope of this manual to deal with the socio economic reasons for this observation, but for completeness, the matter must be mentioned.
It should also be stated that the management of a property that has been financed with government subsidies or has residents whose rents are subsidized requires a thorough knowledge of the regulations established by the United States Department of Housing and Urban Development (HUD) or other governmental housing agencies. This manual does not attempt to address the myriad issues that are unique to the management of subsidized housing.Categorizing the people who comprise the rental market, especially using a small number of classifications, is arbitrary and obviously very general. The exceptions to these descriptions are many and varied. In the final analysis, the quality and desirability of each resident can be gauged only by individual performance.