Thought Leadership

The Rent-to-Income Revolution: Multifamily must Flexibly Adapt

by David Sullivan

The rent-to-income ratio, one of the primary underwriting measures of a renter’s ability to succeed in a home, is being challenged. Modern renters’ income is dynamic and volatile. As a renter’s income evolves, so must our tools that enable property managers to best understand, work with and empower renters to succeed in the home.

Today’s income reality consists of renters with income volatility split across multiple types:

  • Income volatility – Most renters (53%) live paycheck to paycheck. Oftentimes, their paychecks have 20% monthly variability to them due to hourly jobs, bonuses or overtime, and sometimes renters will change jobs during their lease. 
  • Gig & creator economy – Gig workers earn around 58% of what full-time employees earn. According to research from Statista, more than 59 million Americans freelanced in the U.S. in 2020. Gig-economy workers typically get paid daily or weekly and use their freelance jobs to supplement income or replace income in between jobs. Gig work is powerful because any consumer can begin earning income immediately and it can save renters from eviction when they lose their jobs.   
  • W2 changes – Fewer workers are using W-2 tax forms for tracking employee wages and withholding. More companies have classified remote workers as independent contractors. The IRS projected about 37.2 million fewer employee-classified jobs in 2021, and W-2 filings are expected to continue dropping through 2027. 
  • Peer-to-peer cash transfers – Many people use peer-to-peer cash transfers on apps like Venmo, PayPal and Cash App. Some leverage these apps for independent contract work, tip wages or one-off payments. Till’s internal data suggests that these sometimes unknown and seemingly random peer-to-peer cash transfers make up 10% of a resident’s income. 
  • Government Financial Assistance – Many residents today receive government-based financial assistance, like unemployment, stimulus or childcare tax credits. Childcare tax credits can generate $500 per month in additional income for residents. 

Income volatility and variability is straining residents and property management teams alike. How can operators better adapt to how income is evolving and improve the resident experience? 

Having real-time income data is essential to adapt to variable income. New flexible rent technologies underwrite each resident’s individual cash flow in real time and adjust their rental payments accordingly. Rent allocations align and fluctuate with paychecks, so rent payments are optimized even with income unpredictability. 

This is groundbreaking for multifamily as vastly different cash-flow models and pay schedules can exist among residents. Yet the same rent is due on the same day each month. Customized budgeting can significantly help residents make rent a more manageable expense. 

Flexible rent payments are a long-term solution to an industry that isn’t generally known for its flexibility. They mitigate financial risk for operators and help build financial stability for residents. Multifamily must adapt not only for residents, but also to improve the overall collections process and build a sustainable future. 

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