A Look Into The Appeal of Small Multifamily Properties
Landlords and investors know that the rental market never fails to surprise us. We just talked about an unexpected trend in the rental market of many cities in California, and now we’ve got another weird rental trend to crack open. Data from a recent survey from Buildium and Propertyware reveals that renters living in smaller multifamily properties, or properties with two to four units, live in the same unit for a whole year longer than the average renter. They also are less likely to have moving plans over the next year compared to other types of renters.
The survey was designed to gain insight into what keeps small multifamily renters in place, which is important data for property owners and managers alike. The data also hints at what factors will attract new renters to a property in a competition-rich market. Smaller properties often have less to offer amenity-wise compared to properties with more square footage, so how can managers and landlords attract prospects and retain tenants in this environment?
Typically, smaller multifamily rentals provide affordable options in centrally located neighborhoods within a city. Overall, the survey shows that 40% of small multifamily renters are certain that they will renew their lease this year and 33% remain undecided. The survey also notes that smaller properties are usually located in areas with older construction, as “multifamily construction has focused on larger apartment projects since the 1980s.” Neighborhoods in cities like Chicago, Boston, and Portland exemplify this.
These small multifamily properties make up only 14 percent of the rental market nationwide. Why are smaller properties so appealing to renters? Well, these properties actually play an important role in housing, and there are a few key explanations:
- Smaller properties split land prices, property taxes, and other expenses across many units at lower price points than many newer apartment buildings. This allows low- and middle-income renters to choose neighborhoods that are closer to schools, jobs, and other resources. As you probably know, location is more important than any on-property amenity.
- Small properties also offer a few of the comforts of living in a home while remaining in these central locations. “In comparison with apartment building residents, the small multifamily renters we surveyed place a higher premium on living in a property that offers private outdoor space and the option to have a pet; and on living in neighborhoods that are safe, quiet, family-friendly, and lower-density,” according to the Buildium report. These renters are also willing to sacrifice some space to keep amenities like transportation, stores, and restaurants nearby.
- Finally, these properties, while smaller than single-family rentals, offer more space than large apartment buildings. The report explained that “households living in small multifamily rentals had an average of two to three occupants living in properties with two to three bedrooms.” This gives each occupant more living space compared to a typical apartment building which averages two renters in one- to two-bedroom units. These multifamily properties are still “smaller snd more affordable than most single-family rentals (with an average of three renters living in three-bedroom properties.”
Small Properties Attract Individual Investors
The survey data shows that smaller multifamily properties not only seem to attract renters, but they also attract a certain type of property owner as well. These two to four unit properties typically have a lower barrier-to-entry for investors looking to get into the rental property market.
As such, in 2015 over 75% of small multifamily properties are owned by individual real estate investors, not larger investment firms. “In our 2022 survey of small-portfolio rental owners, we found that 41 percent of small multifamily owners only own a single rental property,” the report says.
Another notable trend is that the retention rates in smaller properties is higher than most. As many as 40 percent of residents in these properties plan to renew their lease, which is 4 percentage points higher than the overall average rate among renters.
The survey also notes that this is changing in 2022, likely in response to changes in the rental market. “Renters seem to be feeling greater uncertainty about whether or not to move than they have for the last few years. This is particularly true for younger renters, as rapidly changing conditions in the rental and housing markets impact the affordability and availability of potential homes.”