The statistical facts about tenants, compared with those who buy properties as homeowners or as investors, make the point: There are differences. Nationally, average income among homeowners is about double the income of average tenants. For homeowners. housing costs represent 20 percent of the monthly budget; for tenants, housing consumes 30 percent. This disparity has much to do with age and income differences. About 35 percent of homeowners are in the peak earnings age range, compared with only 18 percent of renters. And only about one-third of renters are married, compared with two-thirds of homeowners.

These statistics reveal the important differences between renters and owners. By implication, it also defines die likely demographic facts about serious investors: They will tend to be older than their tenants, earn more money; and have settled down in a permanent residence. Renters, in comparison, will tend to be less settled, earn less, and be less stable in their work and personal lives. For you as a landlord, this means that tenants tend to move more than you would, so turnover is going to be a fact of life when you have rental property.

People move when they get better jobs and, in fact, even without a job; they may move simply because they have lost a job, with the idea of finding better economic conditions elsewhere. They will also move when they find cheaper rent, or when its time for them to buy their own home. Often, the very best tenants you will find are also the least likely to stay for very long. They will want to buy their own home. For example, someone transferred to town will rent for a brief time—long enough to make sure the job will work out and to become familiar with the community. At that point, this tenant will want to buy a home; being a renter is only part of the transition. While you would enjoy keeping a tenant who pays the rent on time, cares for your property, and shares many of your values, you are more likely to have entirely different types of tenants.

Single-family houses, although the most desirable rentals, are vulnerable to high turnover just like apartments. for one important reason. Rent levels compete with mortgage payments in the same housing range, but without providing any tax benefits to the renter The sophisticated renter who understands these comparisons and would benefit from tax breaks wilt have not only the incentive to buy property as soon as possible, but also the income and credit history to easily qualify for a loan.

Single-family housing used for rental property is also susceptible to changing economic conditions, like all rentals. In tough economic times, higher-level rents tend to turn over more readily than cheaper apartment units; and as families are forced to cut costs, moving to smaller, cheaper living conditions is one immediate step that many are forced to take. So regardless of the kind of properly you buy, your tenants and the local economy dictate the strength of rental demand and even the dollar amount representing fair market rent.

To cope as a landlord, both psychologically and financially, you will need to be realistic about the problem of turnover. Even if you do not lose any actual rent, turnover itself takes time and costs money in cleaning, advertising, checking references, and so forth. If you have to deal with turnover every month or two, it becomes a time burden, perhaps becoming the biggest demand on your time as an investor. Prospective tenants should be thoroughly screened and all references checked. These steps minimize turnover and also reduce your risk of skips, evictions, and wear and tear on your property. Don't expect the average tenant to exercise the same level of care or sense of responsibility that you do. Remember the demographics of renters, and always remember that renters are not owners. You cannot expect a tenant to share your perspective about investing in real estate. The few who do will no doubt be buying their own property within a few months. These are signs that, while there may be past landlords, the prospective tenants do not want you to speak with them, usually for very good reasons. Hopefully, you will be able to choose from among several viable candidates.

 

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