Property Management

The Truth About Renter Income Volatility

by Leslie Hyman

Technology has transformed many facets of our world, and the labor market has not eluded these advancements. We’ve seen the rise of a new era of employment – the gig economy – which is characterized by independent contracts, short-term and freelance work. While technology has certainly played a large hand in the labor market evolution, the pandemic and desire for more flexibility accelerated its progress.

The gig economy is an unconventional work style, but has recently become a viable and flexible option for long-term work. Gig work can be stable in many aspects, but does come with a number of caveats, notably volatile cash flow. Gig workers, most of them renters, get paid throughout the month, but their paychecks are extremely variable. A volatile income still supports renters, but it creates some challenges when making their largest monthly payment: rent, in-full.  And income volatility among renters will only continue to grow with the burgeoning options the gig economy provides. 

Volatile cash flow is also not a new concept to the U.S. Based on Jonathan Latner’s “Economic insecurity and the distribution of income volatility in the United States” research, income volatility rose nearly 40% from the early 1970s to the mid-1990s. Based on data from Statista, 86.5 million people are projected to be freelancing in the U.S. by 2027, which will make up 50.9% of the total U.S. workforce. 

These are notable statistics – especially for the rental housing industry with more than 44 million renters. As an increasing number of renters have variable income, their financial realities clash with the traditional rent payment schedule that’s due in-full on the first of every month. Rent is the largest monthly expense for residents; while the way renters get paid has significantly changed, collections remain mostly unchanged. 

The rental housing industry has adapted in other ways to meet renters where they’re at. Apartment operators have introduced new technologies and processes to modernize the leasing journey while creating better living experiences for residents. The industry is adapting, yet a legacy mindset remains when it comes to rent. Meanwhile, the economy, workforce and nature of income have all changed, which has put massive pressure on rent collections. 

Based on findings from the The Department of Housing and Urban Development (HUD), an estimated 3.7 million of renters are threatened with eviction each year. On top of that, 6 million renters are behind on their rental payments. A renter’s financial pain translates to the property’s financial pain. When renters are behind on rent payments, it impacts the operator’s bottom line and tanks asset value. Not to mention, the effort to collect late rent and start the eviction process is extremely costly and taxing on the onsite team. 

Operators across the country have been looking for seamless, effective methods to recover that debt while also keeping renters in their home. An eviction hurts everyone, and operators try to avoid taking that route. While operators have been adapting to new renter behaviors and trends, they’re also acknowledging the financial realities that many renters face and trying to sync with the shifting economy.   

Renters with income volatility can pay rent, but their cash flow sometimes impedes their ability to pay in-full at the beginning of every month. Apartment companies have started leveraging technology in the collections process and providing comprehensive payment platforms to better align with individual residents’ cash flow. Extending a customized payment schedule for renters who need it sets them up to successfully pay rent on time. By offering additional and customized payment schedules to better accommodate renters, operators are seeing a reduction in delinquencies. 

Based on our internal data, operators who utilize a comprehensive payment platform have noted an 17.5% increase in on-time rent payments. 

Innovation rent payment methodologies are an extension of operations and alleviate the major collections pain points for residents, onsite teams and operators each month. These strategies not only maximize rent payments and help renters build financial stability, but they also increase NOI and asset value that meets operator needs while reducing the onsite team’s burden. 

Operators will continue to adapt, and the shifting workforce is tipping them in the direction of innovating rent and collections. As the gig economy shows no signs of losing momentum, income volatility will continue to challenge rental housing and its framework of traditional collections processes. But this challenge also presents an opportunity to create more sustainable, modernized and lucrative strategies that benefit both renters and operators. 

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