Rents Increasing Faster for Renewals on Single-Family Rental Properties

house home rental rent renterManagers of properties in single-family rental (SFR) securitizations have been steadily increasing rents more for renewals than for new tenants for vacant properties over the past two years, a new report by Morningstar Credit Ratings has found.

According to Morningstar’s 28-month-long analysis of single-family rental securitizations, rents in Q4 of 2015 dropped for new tenants (after almost half a year of remaining flat), while at the same time rents for existing tenants has increased gradually and steadily since at least July of 2014.

While both categories show increases since the summer of 2014, renewals rents have tended to go up by a steady 3 to 4 percent, while vacant property rents were a little less consistent. A graph shows that more than 80 percent of renewal properties showed increased rents at the end of January, compared to 60 percent of vacant properties hoping to lure a tenant. In July, both types of properties were about even at just under 80 percent, according to the report.

Length of vacancy is a big factor in allowing property managers to increase rental rates. The longer a property remains vacant, the more likely a property manager is to shift the focus from optimizing the rent to simply getting the property occupied, the report found. Therefore, where tenants are in place, it’s easier to ask for more money.

“One of the most basic, but important, concepts in single-family rentals is simply to keep properties occupied and, as a result, cash flowing,” the report stated. “It is in the interest of single-family rental securitizations for property managers to keep properties occupied by maintaining high renewal rates.”

There also appears to be some seasonality to the rental increases. Larger increases in renewal properties occur more often in fall months and larger vacant-to-occupied increases happen more in summertime.

According to Morningstar, school systems have a lot to do with this seasonality. Property managers stress the importance that tenants place on their preferred school districts, and that new tenants are willing to absorb higher rental rates in the summer in order to be settled in time for the new school year. Meanwhile, renewal tenants will pay higher rental rates in the fall to meet their desire to stay in a chosen school district, the report found.


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