CRE Investor Tip - Multifamily Tenant Segmentation
Updated: Sep 1, 2019
Understanding what type of household a property is tailored for and what the needs are will help capture the most value out of the renter market. Each type of renter household will have a wish list for amenities that they will each respond best to. Marketing strategies tailored to the appropriate segment will also maximize efforts. All of this leads to better capturing market rents, achieving market occupancy levels, and lowering marketing costs.
I use the household categories and definitions given by Yardi Matrix market research. We use this and other tools for asset selection, increase competitiveness of an existing property, or re-positioning to meet the market by going after a different segment.
Lifestyle households (renters by choice) have wealth sufficient to own but have chosen to rent. Discretionary households, most typically a retired couple or single professional, have chosen the flexibility associated with renting over the obligations of ownership.
Renter-by-Necessity households span a range. In descending order, household types can be:
A young-professional, double-income-no-kids household with substantial income but without wealth needed to acquire a home or condominium;
Students, who also may span a range of income capability, extending from affluent to barely getting by;
Lower-middle-income (“gray-collar”) households, composed of office workers, policemen, firemen, technical workers, teachers, etc.;
Blue-collar households, which may barely meet rent demands each month and likely pay a disproportionate share of their income toward rent;
Subsidized households, which pay a percentage of household income in rent, with the balance of rent paid through a governmental agency subsidy. Subsidized households, while typically low income, may extend to middle-income households in some high-cost markets, such as New York City;
Military households, subject to frequency of relocation.
These differences can weigh heavily in determining a property’s ability to attract specific renter market segments. The five-star resort serves a very different market than the down-and-outer motel. Apartments are distinguished similarly, but distinctions are often not clearly definitive without investigation.
Who is your property best suited for and are they the ones actually renting from you?