A recent report published by the Terner Center for Housing Innovation, “Ownership and Management of Small Multifamily Rental Properties,” sheds light on an essential but under-studied segment of the rental market: small multifamily properties. Small multifamily properties, housing between 5 to 49 units, are a crucial source of unsubsidized affordable housing in the United States. They constitute about 17% of the nation’s rental housing landscape with approximately 8.2 million units.
The report explores the results from a survey of owners and managers of small multifamily rental properties from across the country.
Insights on Ownership Characteristics
- Most small multifamily properties were owned by individuals, although they often established an LLC to hold the property.
- Owners of small multifamily properties were a mix of professional, fulltime property owners and part-time, non-professional property owners. Nearly half (45%) of the surveyed properties are managed solely by the property owner.
- Owners of small multifamily properties were less demographically diverse and had higher incomes than the general population.
Insights on Tenant Screening and Selection Practices
- Most owners used multiple methods to screen rental applicants, with variations based on portfolio size.
- On average, most owners and managers utilized 5 distinct methods to screen tenants. Employment verification, rental application responses, and credit checks were the most prevalent screening methods, each utilized in over two-thirds of properties. More than half of the property owners used personal interviews, proof of meeting minimum income requirements, references from a prior landlord or rental agent, and criminal background checks.
- Owners with larger rental portfolios (50 or more units across multiple buildings) tend to utilize third-party online screening services like RentPrep or RentSpree. These services consolidate data on a renter’s income, credit, evictions, and criminal history, providing a score indicating the applicant’s perceived risk level for renting.
Insights on Owner’s Rent Setting Practices
- Owners of 49% small multifamily rental properties reported that they believe most or all of their units are rented below market rate.
- Below market rents are common among small multifamily properties. Owners reported keeping rents low, primarily to prevent or reduce tenant turnover.
- Owners of most properties consider market rents when deciding how much to charge; however, in about one third of properties, owners reported rarely changing rents for continuing tenants.
Insights on Tenant-Default Management During the Pandemic
- Most properties saw an increase in late or delinquent rent payments during the pandemic; owners of about a quarter of properties faced moderate to severe cash flow problems as a result.
- Forty-five percent of owners reported applying or helping tenants apply for rental assistance as a means of addressing late rent.
- Evictions were pursued in a third of small multifamily properties in response to unpaid rent during the pandemic.
Insights on Small Multifamily Property Maintenance Practices
- Most properties were in good or excellent condition according to their owners; however, more than a quarter of properties needed substantial improvements.
- Owners of 25 percent of properties admitted to postponing maintenance of some kind; properties with owners facing serious cash flow problems were more likely to report deferring most maintenance.
Valuable policy suggestions for the affordable multifamily property management segment
- Need for more data and greater representation.
- Capital improvement or property repair funding in exchange for a commitment to rent at affordable levels may help address housing quality and habitability while preserving unit affordability.
- Need for more robust efforts to educate smaller-scale owners about the range of supports available to them to help maintain the physical quality and financial health of their properties.