Renters by Necessity vs Renters by Choice

There are 2 types of renters. Those cannot afford to buy home and its their necessity to rent a house or condo or apartment or mobile home park. Other type is who can easily afford a home but their choice is to rent due to several factors like mobility, single and haven't formed household yet, don't want to deal with home owner issues, make it as an expense etc. We will dig deep into each category of renters and how to analyze them as an investment/ operator perspective.

Renters by Necessity:
1) Mostly working professionals. Gray collar house holds such as policemen, fire fighters, teachers, people working in government. They look for reasonable amenities, good location, good schools, transportation facilities. (B, B- class properties come under this category)
2) Another segment for Renters by Necessity are blue collar workforce, who look for lower rents who primarily go after older assets and may be fewer amenities. (C-, C, C+ properties come under this category)

The reason for renters in this category are due to not adequate credit score, not much saved for down payment, single income households, just started family, affordability etc.

There is another segment in renters by necessity which are in affordable housing, where their income is lower than AMI (average median income) in that area and depend on subsidized housing. 

Renters by Choice (Lifestyle):
1) Working professionals, lifestyle renters, high income earners, DINK (Double Income No Kids) households who require high end finishes like in condos with more amenities to fit the social experience, common areas etc. (B+, A- properties come under this category)
2) Renters who command resort style living and amenities, exceptional details, luxury single family home level quality. They can easily afford homes but chose not to buy due to several reasons like lifestyle, don't want to deal with owning a home, mobility, rental expenses paid by company, proximity to really good location etc. (A, A+ properties come under this category)

We as a value-add syndicator wants to be in Renters by necessity space but only in higher class like C+, B. We also look into renters by choice in B+ space only if the rents are really low, if there is a possibility to add more amenities and increase the level of interiors to say Gold level package.

Overall rent growth is higher in renters by necessity segment from past few years. Some graphs for our analytical readers:
1) Find the number of Class A vs B/C apartment units in the market over time.
2) ​Renters and their income scale.
3) Renters and their households.

Sources: Yardi Matrix, Zillow, US Census, Harvard Renter Study

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Thanks,
Rama Krishna
​rama@zovest.com