Could Rental Housing Be a Growth Opportunity for Your Business?

by Fred Miller

As you probably noticed, there was a surge of purchases of houses by investors. These folks stepped in at the bottom of the housing cycle and bought many houses to rent and then eventually look to make a capital gain by selling as prices rebound.  They were major buyers of distressed properties, particularly foreclosures.

Buying these homes for rental turned out to be a good idea as several factors have made this market a hot one.

  • Homeowners, who lost their homes to foreclosure or short-sales have very bad credit and often cannot get a mortgage to buy another house. It’s either move in with a relative or rent.  Hence lots of renters.
  • Mortgage lending standards have tightened significantly. At one time the standards were very weak.  Like with many things, the pendulum has swung too far the other direction and only the best credit risks are getting loans. This forces households to rent.
  • Lastly, some young adults are afraid to buy homes because of what happened when the market burst. No one wants to have a house where it is worth less than the mortgage debt. They are postponing buying a house and are very happy to rent.

The numbers speak for themselves. The most recent data on homeowners versus renters came out for the second quarter of 2015 and rentals continue to grow.

1st chart

Source, Consumer Specialists calculation from U.S. Census Bureau release 7/28/2015, RESIDENTIAL VACANCIES AND HOMEOWNERSHIP IN THE SECOND QUARTER 2015

All of this means that things are good for owners of rental properties.

Since many of the houses that were purchased were distressed, they should have needed a lot of fix-up work. Also they will need upgrading like all houses do if they are going to command increasing rental rates. This should be a good market for remodelers to expand their business, if they can do it right.

It appears that most NARI remodelers have not entered this segment of the market.  In our June RBP study, we asked questions about work in the rental market. Two-thirds of NARI remodeling members currently do not work on rental properties.

2nd graphic

Source, NARI Second Quarter 2015 Remodeling Business Pulse Survey

With the growth in rental housing there is clear opportunity for remodelers to expand into this area. It is important to recognize that there are differences between working on rental versus owner occupied homes. We asked NARI members who are working on rental properties to compare the importance of seven aspects of the job versus owner occupied homes.

The ability to start quickly, speedy completion and price all were more important for rental homes. Getting done quickly is likely more important as major remodeling projects may be done when there is a change in tenants. The investors want to start collecting a higher rent based on the improved property as soon as practical.  Given the investment nature of these homes, it is also logical that cost would pay a larger role.

Being long lasting, saving money on energy/or water, adds value, and attractive design all were stronger for owner occupied homes.

3rd graphic

Source, NARI Second Quarter 2015 Remodeling Business Pulse Survey

Clearly there is a need for rental home improvements, and to be successful the remodeler needs to customize their approach to meet the differential needs of this segment. Each remodeler might ask themselves:

  • Is the rental market segment right for my company?
  • How do I meet the speed and price needs of these customers?
  • How can I identify the owners who are targets in this market and effectively build a relationship with them?

fredmillerAbout the author: For the past 18 years Fred Miller has been President of Consumer Specialists and a leading consultant in the $300 billion home improvement market. From 1998 through the first quarter of 2015, his consulting has included serving as Managing Director of the Home Improvement Research Institute (HIRI).  Consumer Specialist conducts the Remodeling Business Pulse survey and NARI Remodeler Member Profile on behalf of NARI.

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