The conversation surrounding which amenities are a must-have for multifamily properties has a funny way of changing as the market cycles. From a landlord’s perspective, offering unique or highly desirable amenities can give a property the extra oomph it needs to stand out in the marketplace. With a recession around the corner and the Fed gearing up to raise interest rates yet again, nearly everyone is bracing for the impending economic downturn. So what’s the trendy amenity forecast for this market cycle? All signs point to one in particular: flexible rent payments.
2023 is slated to be a bumpy financial year, especially for renters. Projections from the Federal Reserve Bank of Dallas show that rent inflation is expected to accelerate this year, which puts additional monetary pressure on multifamily tenants. Landlords aren’t spared from this strain either. Aside from the emotional toll and reputational damage that comes with having to evict a tenant whose only offense is a financial struggle, landlords know that it costs more to acquire new residents than it does to keep current residents. But by offering a flexible rent payment schedule, where renters can split up their rent payments into smaller increments over the course of the month, property owners and managers can support their residents without sacrificing revenue.
The gift of time
Flexible rent payments have been around for a long time, although the specific types and options have evolved over the years. Often, when people think of flexible rent payments, government-subsidized housing programs for low-income individuals and families comes to mind. But flexible rent payment options aren’t limited to Section 8 Housing vouchers. One particular flexible rent payment option that’s flourishing is looking to leverage rent payments as a vehicle for financial independence without the need for any government subsidy. PadSplit, a PropTech house-sharing startup, came onto the scene in 2017 after affordable housing advocate Atticus LeBlanc realized that his tenants had an easier time keeping current with their rent payments when he allowed them to pay on a weekly basis. “When I started creating weekly bills for residents,” wrote LeBlanc, “I found that the cadence made budgeting significantly easier for them. And miraculously, weekly payment plans to repay past due balances netted substantially higher payments than the typical monthly rent—even without any increase in income.”
LeBlanc, who later founded PadSplit and now serves as the company’s CEO, realized that while the first day of the month can easily slip people’s minds as they go about their day-to-day, almost everyone knows when it’s payday. Whether it’s Friday or any other day of the week, creating a budget around payday is a much simpler undertaking. “We don’t live in 28-to-31-day increments,” LeBlanc added.
Allowing a renter to split their rent payments into smaller increments does have its benefits. As LeBlanc pointed out, flexible payments offer the renter the opportunity for better cash flow management. When renters have the ability to pay their rent on a schedule that better aligns with their own cash flow, they may find it easier to manage said cash flow. Smaller, more frequent payments can help them avoid falling behind on their rent payments or other bills. This can help to reduce the risk of rental arrears, which can be costly for both landlords and renters.
Besides being a good business decision, flexible rent payments represent a way for the real estate industry to support a social good. For some renters, paying rent on a weekly basis may make their rent payments more affordable. By breaking up a large monthly payment into more digestible installments, renters may find it easier to manage their finances and avoid falling behind on their rent. This can help to reduce the risk of eviction and homelessness, which can be costly to society as a whole. From a macroeconomic perspective, granting the option of dividing up rent payments can boost consumer spending. By reducing the financial stress of rent payments, renters may be more likely to spend money on other goods and services. This can help to stimulate economic growth and support local businesses, which can positively impact on the local economy and help boost property values.
Risk-reduction is another perk of flexible rent payment structures. From a landlord’s perspective, weekly rent payments can help to reduce the risk of rental arrears. If a tenant falls behind on their rent payments, landlords may have to spend time and money pursuing legal action to recover the debt. By collecting rent payments more frequently, landlords can detect payment issues sooner and take action to address them before they become a more serious problem. This is something that Stephen Baker, President of Zego, a multifamily resident experience platform, is quite passionate about.
I had reached out to Baker after Zego announced that it was finalizing a partnership with a flexible payments provider. Baker told me that Zego’s partnership will guarantee thorough rent collection for owners and operators at no additional cost, while renters get the option to make their rent payments into more manageable installments over the course of the month. “I think it’s better for everybody,” he said. “At the heart of it, it really lowers the friction between property managers and residents.”
Baker told me that by offering flexible rent payments, landlords can build trust with their tenants. Since trust is a key factor in tenant retention, tenants are more likely to stay at a property if they feel their landlord is reliable, trustworthy, and responsive to their needs. But flexible payment providers allow for that trust to go both ways since renters can’t misuse the payment structure to delay or reduce their payments. Renters who fail to make their weekly rent payments are ultimately locked out of the flexible option after a month, and will continue to be unable to make the divided payments until they have gotten current. “If a tenant falls behind,” Baker explained, “the flexible rent provider makes the payment to the landlord and follows up with the tenant to get the money. And if the resident doesn’t pay, then the landlord is still made whole for that one month that the flexible payment was made and then the next month the flexible payment company doesn’t make the payment in effect. If nonpayment continues, then the typical eviction process can be carried out, so the landlord isn’t harmed financially in the end.”
Offering flexible rent payments may sound like an administrative headache, but property owners and managers have several third-party options in the PropTech marketplace to choose from, like PadSplit or Zego, to manage this new amenity. Against this current economic backdrop, flexible rent options may be more palatable for the renter. But at the same time, flexible payment options can boost cash flow and improve retention, ultimately benefiting the landlord’s bottom line. Honestly, flexible payment options may be more of an amenity for owners and operators.