This was a question we received from one of our investors recently. With the rapid rise in interest rates, investors are naturally concerned about the impact on Cap Rates and asset valuation.

To address this concern, here is a reminder that the Cap Rate is not just a function of interest rate but many other factors.

•  Asset valuation is a function of both the Cap Rate and Net Operating Income (NOI).
• At this point, the fundamentals of Supply and Demand of rental units may be playing a bigger role than the interest rate. And the very high inflation levels are complicating things further.

The Net Operating Income (NOI): Rental income is still rising faster than expenses, thanks to historically high demand for rentals and the supply hasn’t kept up with the strong demand. This has allowed continued growth of NOI, with other things remaining constant. Reports of double-digit annual rent growth have made headlines in the last year and more and continue to hold strong.

Supply and Demand of rental units: Specifically for certain types of assets, there is a continued shortage of supply of new rental units. The supply shortage is likely to continue as construction costs have risen and supply chain issues continue to persist. Newer Class A units that have come to the market are simply not affordable. The rising interest rate environment has also kept the demand for rentals high as high mortgage costs have weakened the case for home ownership.

We also believe that the recent inflation will continue to make real estate more valuable. The replacement cost has also increased significantly and might come down slightly but we believe there has been a permanent upward shift.

To discuss more on this topic, Click here to Contact us.

Getting Started with Rental Property Management

This is a question we get quite often. “I own a single-family home and would like to rent it out to supplement my monthly income. How do I get started? What process do I follow? Should I seek outside help, and who do I hire?” Here are some considerations for you, assuming you have decided to go ahead.

• Do you want to self-manage? Or use a professional full-service property management company? Do you have the time, knowledge and ability to manage rentals? Or maybe you want to start off using a third-party management company and transition to self-management in future (we often recommend this to those new to rental property management)

• Know your market:

1. 1. 1. Average rents in the area for your market for comparable properties
      2. Identify comparable properties
         1. (Apartments vs. single-family homes vs. townhomes)
         2. A number of bedrooms, bathrooms, layout, features, layout and design, kitchen design, square footage, lot size, garage, parking, amenities, age of home, upgrades, air-conditioning and heating etc.
         3. Compute a $/sq.ft number and compare with other properties
      3. Do people mostly own homes or rent?
      4. Collect Neighborhood data – population and population growth, jobs and job growth, average income, safety, demographics, schools, key employers, city governance, rental market trends, quality of life rankings, amenities, retail etc.)
      5. Supply vs. demand: housing inventory stock

• Marketing and leasing your property:

1. 1. 1. Outsource: Use a leasing agent or property management company
      2. DIY:
         1. Use Zillow Rental Manager (or equivalent), Facebook Marketing etc. for advertising your property with photos and videos and necessary information (Monthly Rent, Security Deposit, Lease Duration, Pet Policy etc.)
         2. Set up showings and clarify the process with prospective applicants for approval.
         3. Get a lease template and make sure the terms and conditions are satisfactory in the final Lease Document that you send for signing.
         4. Sign the lease

• Move-in: in case of DIY rental property management

1. 1. Apply for your rental license
   2. Now that you have signed the lease, provide a copy to your tenants.
   3. Establish communication protocols and rent payment procedures (when to pay and how). You could consider using property management software like Tenant Cloud or Rent Ready etc.
   4. Provide move-in Instructions and Utility Set-up instructions
   5. Walk through the unit with the tenant and take pictures of the condition at hand-over. Explain how the appliances (washer/dryer/furnace/AC/ thermostat/ garage door/ etc.) work and general instructions for troubleshooting when issues arise.

Congratulations, you are now all set to manage your first investment property.

In this post, we will attempt to address to burning questions around this topic:

• Why do rental property investors need asset managers?
• What is the difference between as Asset Manager and a Property Manager? Successful real estate investment management calls for an integrated management strategy with a two- pronged approach that addresses both the “macro” and “micro” considerations:
• The Micro: Daily property management of rentals that includes servicing the tenant needs completely from rent collection and lease management issues to addressing any repair and property maintenance issues that might arise. To read more details about Property Management approach, follow this link (To Asset management page)
• The “Macro: Overall asset wellness monitoring as well as investor management. This includes:
•  Providing financial and strategic direction to the property manager
• Monitoring the actual property conditions and capex projects
• Real estate market monitoring, including trends and research on macro-economic, political, and financial issues.
• Addressing all investor issues with the aim of growing the investors’ portfolio while mitigating any potential risks.

To read more details about our Asset Management approach, follow this link (to Asset Management page)