By Ryan Squires
The question of how to rent out your house might arise due to a move, financial reasons, or an emotional attachment to the property that keeps you from selling it.
The process can be daunting, though. There are legal elements to understand, tenants to screen, and home improvements to ensure your rental is competitive and attractive to applicants.
Don’t let fear of the unknown stop you. There are tricks and tools available that make home rental a breeze. Property management software like TurboTenant can streamline your workflow to take much of the work off your plate.
Below, we’ll take a deep dive into:
- Not only how to rent out your house but how to rent out your house effectively and efficiently
- How landlord-tenant laws can impact your rentals
- How to find, screen, and place tenants
- The pros and cons of property management
- The steps you can take if you want to learn how to rent out your house and not drive yourself crazy in the process
In this guide, we’ll look at how to rent out your house in 12 easy steps.
Renting Out a House: Benefits and Drawbacks
Let’s review some of the most common pros and cons that we hear from both first-time and veteran landlords, which can hopefully point you in the right direction for your own house rental experience.
Benefits of Renting Out a House
When you’re determined to learn how to rent out your house, it can be tempting to focus on the positives initially — and there are plenty! Renting out property can be a fantastic source of passive income, helping you retain property over the long term and providing valuable insights into property management. As a result, you may feel confident using property management software to handle the tasks yourself rather than hiring a property manager.
Let’s dive into some of the benefits you’ll experience when renting out your house.
1. Maintain Ownership
There might come a time after purchasing a home that you’d like to move, can’t afford to own two homes at once, and don’t want to sell your property. Renting out your house means you can generate income to buy a new home without selling anything or giving up a great interest rate. This approach allows you to maintain flexibility while benefiting from the investment opportunities a rental property provides. Many landlords have realized that renting their house keeps more long-term options open and on the table.
2. Create Passive Income
Renting out your home can generate extra income, which aids in covering property costs while contributing to long-term financial stability with minimal ongoing effort. After preparing your property and securing a tenant, the required attention significantly decreases, allowing you to focus on other interests or expand your property investment portfolio.
The workload lessens when you incorporate property management software into your workflow.
3. A Chance to Grow
While some skills are easy to learn from a book, learning property management is best done through hands-on experience. From handling tasks like tenant screening, financial accounting, maintenance and repairs, and lease management, you’ll quickly receive a crash course in property management.
The experience you gain after managing your first property or two helps you move from asking yourself, “How do I rent out my house?” to “How many houses can I rent out?”
Drawbacks of Renting Out a House
While there are several clear benefits to learning how to rent out your house, it’s also worth considering the other side of the coin. Becoming a landlord can be a time-consuming and expensive hobby, with tenants and personalities to manage, problems to solve, and expenses to consider.
1. Staying Current with Laws
One of the key components of renting out your house that we’ve already discussed is the existence of landlord-tenant laws. These laws can be tricky to navigate, and they’re constantly changing, so ensuring you fully understand the federal, state, and local guidelines is paramount. There could be serious consequences for landlords who run afoul of these statutes, not to mention potential reputational or legal risks.
Since landlord-tenant laws can change from year to year, make sure you pay attention to what’s happening in your property’s area. Keeping your finger on the legal pulse is one of the most important aspects of managing property.
2. Creating More Work for Yourself
When you consider how to rent out your house, it’s easy to forget how much time tasks can take from your day-to-day schedule. Finding leads, screening tenants, showing property, managing maintenance, and collecting rent can quickly pile up on your to-do list, and it might be hard to find enough time in the day. And if managing the property isn’t your main gig, adding more to your plate could quickly become untenable.
If you’re not ready for the time commitment it might take to launch your investment business, property management can quickly become a demanding and stressful experience.
3. Financial Challenges
The real estate market can sometimes be an adventure, with house prices fluctuating and interest rates constantly changing. Many landlords wonder how to rent out their houses in times of financial uncertainty, but there is never a clear answer.
However, while property ownership is generally a solid and reliable investment, unforeseen expenses and challenges can arise at the most inopportune times. Even with careful financial planning, there’s no guarantee that renting out your house will be immediately profitable.
From external challenges, like weather and natural disasters, to other challenges, like tenants breaking a lease early and unexpectedly, new costs and expenses can pop up when you least expect it, causing high stress and a financial burden.
12 Steps to Renting Out Your House
Renting out a house for the first time can be either a key first step into large-scale landlording or a small step into casual property management. Either way, understanding how to rent out your house begins with preparing yourself and your property to comply with local laws while creating an attractive package for renters.
Key steps include setting a competitive price, advertising to the market you want, screening and approving new tenants, lease signing, and arguably the most important part of renting out a house, collecting rent.
Now, let’s dig into the details.
1. Learn the Relevant Laws
When wondering how to rent out your house, it’s easy to skip over a crucial first step — understanding and complying with local, state, and federal landlord-tenant laws.
One of the most important laws to understand at the federal level is the Federal Fair Housing Act. This law aims to keep housing as fair as possible and requires landlords to avoid discrimination in advertising rentals or accepting tenants. This means landlords can’t use criteria like race, sex, or religion to decide who to rent their property to.
All of this is to say that landlords must stay current on landlord-tenant law. TurboTenant offers updates on new changes to local, state, and federal laws and provides legally compliant lease agreements for all 50 states.
2. Use Landlord Insurance
Landlord insurance protects against unexpected events like property damage or tenant disputes. Unlike standard homeowners or renters insurance, landlord insurance specifically fits the needs of rental property owners, covering risks like property damage, liability claims, or loss of rental income in specific circumstances.
Landlord insurance comes in various types and can safeguard you from a number of challenges that may arise when renting out a house. While TurboTenant doesn’t directly offer landlord insurance, we partnered with Steadily to help landlords choose the best insurance for their needs.
3. Set Your Rent
To successfully rent out your house, first ensure that your property is legally compliant and market-ready. The next step involves researching and establishing a competitive and profitable rental price.
The best way to determine a competitive rent price is to closely examine local listings similar to your property, assessing the features, amenities, and similarities/differences to determine where to set the price. It’s important to also factor in the square footage and condition of the property to establish the proper benchmark. TurboTenant offers a rent estimate tool that can help you streamline the process.
Once you’ve done the legwork, find the amount that will cover your costs — things like mortgage payments, property taxes, insurance, and ongoing maintenance are necessary to factor in when setting the price. Striking the right balance between a competitive market rate and profit will go a long way toward setting you up for long-term prosperity.
4. Create a Compelling Listing
Crafting a compelling property listing with clear images and detailed information about the property will attract better tenants and more inquiries. Visually showcasing the property’s highlights and best features is one of the best ways to show off your home.
Follow that up with a well-thought-out description of the property, using detailed and creative language to excite potential applicants and encourage them to apply. Don’t be afraid to check out other listings to get a feel for the kind of descriptions that other landlords use and then enhance those for your own benefit.
Once you have a listing you like, post the ad to a listing service to start farming for leads. Ideally, you will post your ad on several platforms in order to maximize the listing’s visibility. TurboTenant features an automated advertising tool that distributes your listing to dozens of major rental websites, like Redfin, Apartments.com, Craigslist, and more.
And if you experience writer’s block, consider using our AI property description tool to help you draft your next description fast.
5. Sort Through Applicants
The transition from “how to rent out your house” to “how to select the right tenant” isn’t a straight line. Now that you (hopefully) have a pile of applications stemming from your listing, getting through the stack as quickly as possible can reduce the amount of time your home is vacant while ensuring you get the right candidate before they sign elsewhere.
Digital tools help speed up the review process, organizing information efficiently to increase efficiency and reduce the time it takes to pull everything together. TurboTenant’s free online application tool simplifies the application and review process by keeping everything in one easy-to-find location.
6. Screen Each Tenant
Screening tenants involves looking into the past to help guide the future. In a thorough report, you’ll find credit, background, and eviction histories, as long as your area permits you to review this information. Detailed information provides peace of mind to landlords, who can feel more secure knowing they’ve selected the most qualified applicant. However, it’s also essential to steer clear of discrimination during this process by consistently evaluating every tenant with the same criteria.
Consider TurboTenant’s comprehensive screening service, which includes credit checks, criminal history, and past evictions. Plus, it’ll help you avoid discrimination lawsuits by enabling you to apply the same criteria to every applicant.
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7. Create a Solid Lease
Once you’ve found the right tenant, a clear and concise lease agreement is your first line of defense against tenant disputes or conflicts. It’s essential that a lawyer review your lease and that it follows all federal and local landlord-tenant laws to be legally compliant.
Since the lease is the defining document in renting out your house, you’ll want to ensure that it includes key clauses about maintenance responsibilities and utilities, pet policies, late fees, and anything else that should be called out for your rental. The lease should avoid any prohibited clauses or language to prevent it from being declared void or unenforceable.
We want to help make this process easy for you. TurboTenant offers landlords fully customizable lease agreements that have been legally reviewed and lawyer-approved to ensure full compliance across the United States.
8. Move-In Time
The next step in learning how to rent out your house is actually renting out your house! You’ve selected an applicant, so now it’s time to review and sign the lease, walk through the property with the tenant one last time, and then hand over the keys.
You can now explain your expectations for the new tenant and how you’ll address their needs. Ideally, this is all captured in the lease agreement, which is a legally binding contract that aims to reduce miscommunication and put all parties on the right track.
TurboTenant features a lease management system that allows everyone to sign the lease electronically and store it in a centralized location within the platform if anyone needs to review any of the terms.
9. Collect Rent Securely
One of the reasons many people want to learn how to rent out their house is for passive income. As such, rent collection is one of the most important aspects of renting out a house. You won’t be in business for long without a solid rent collection process!
Regardless of how many homes you manage, directing all rent payments to an online collection system is one of the most convenient and secure ways to collect.
Not only can TurboTenant manage leases, screen tenants, and advertise your rentals, but it can also collect rent through a powerful rent collection system. This tool allows for secure online payments and enables landlords to send out automatic reminders leading up to the due date, which reduces late payments and keeps everyone on the same page.
10. Use Maintenance Tracking Tools
Managing maintenance effectively is a good way to ensure your properties are ready to rent for the long term. Between ongoing, routine maintenance tasks and tenant requests, staying on top of repairs can keep costs down and tenants happy. A maintenance tracking system can help you stay organized and ensure that any issues are resolved promptly.
Managing a backlog of maintenance requests efficiently can be challenging, so TurboTenant has developed a robust maintenance management tool that can help landlords manage and track maintenance requests, assign vendors, and track costs.
Ultimately, keeping rental units in good repair can quickly balloon costs, so a powerful maintenance tracker can help keep costs down while fixing problems as quickly as they arise.
11. Foster a Positive Relationship
The first thing you thought of when you were wondering how to rent out your house probably wasn’t how to build trust with your tenants. But when you think about it, great communication and a positive relationship could mean the difference between filled and vacant units.
Start by being approachable and flexible with your tenants, answering questions, and promptly addressing repair requests. Make sure the lease is clear to everyone and maintain a positive presence when on the property. Good communication can prevent potential issues and foster a generally positive rental experience. Tenants who feel heard and listened to are more likely to stay on a property long-term instead of seeking other accommodations.
TurboTenant features a centralized communication system, making it easy to directly message tenants through the desktop platform or individual mobile apps for landlords and tenants. When you communicate in the same place where you do business, nothing gets mixed up.
12. Streamline Renewals
Developing a proactive lease renewal process can help avoid vacancies, which could result in losing necessary income, and retain good tenants. To this end, it’s incredibly important to ensure your tenants are aware of when their lease term is ending and provide them with adequate time to review any rent price increases, if necessary.
This process could become cumbersome depending on how many units are in your portfolio. But leveraging software like TurboTenant couldn’t be easier. Because of TurboTenant’s lease tracking and management system, seeing which leases are about to terminate is easy because we display the termination date below the property address in the lease dashboard.
And when it’s time to renew, you can easily convert the lease to a month-to-month agreement or add an addendum.
So, should you rent out your house?
You’ve waded into property management and learned the basics by asking how to rent out your house. But the ultimate decision to rent out property is up to you.
Consider your short—and long-term financial goals. Are you looking for steady income right now, or is renting out property a long-term investment strategy to build a larger portfolio? Are you prepared to take on the multitude of tasks that renting out property can add to your plate?
Finally, what are your plans for the future — not only for yourself but for your property? Is this property one you plan to live in yourself someday? Or have you decided not to occupy the home again but want to build on the investment you’ve already made in the house and focus on a long-term growth strategy?
Asking yourself these questions and taking the time to consider why or how to rent out your house can help you achieve success or avoid disaster.
How TurboTenant Can Help
Whether you have one unit or 1,000 units, TurboTenant is here to help with all of your property management needs. When the tasks start to pile up, finding the most efficient process to streamline your day-to-day workflow is critical for long-term success as a landlord.
As a best-in-class, free property management software, TurboTenant offers landlords features like:
- Online rent collection
- Lease management
- Maintenance tracking
- State-specific, legally reviewed lease agreements
- Property listing syndication
- Tenant screening
- Financial and accounting tools
How to rent out your house doesn’t have to be a scary question. With software like TurboTenant, jumping into property management for the first time has never been easier.
So, sign up for a free account today!
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Written by Emily Koelsch
“Renters by Choice” is a relatively new and increasingly widespread phrase. It’s a broad term that refers to anyone who chooses to rent for reasons besides financial necessity.
Recent data indicates that more people choose to rent for the long term. These tenants no longer see renting as just a stepping stone towards homeownership.
Renters by choice are ideal tenants for most Landlords. They’re financially stable and want longterm Lease Agreements in class A properties. As a result, real estate investors should pay attention to this trend and consider it when making investment decisions.
To help you do that, here’s an overview of the movement towards renting by choice and some ways it will impact investors.
What Does It Mean to Be a Renter by Choice
A renter by choice is someone who has the financial resources to purchase a home but chooses not to. It’s important to note that people in this category don’t necessarily have the means to purchase a home in the same market where they’re renting. However, they do have the resources to purchase a home and have housing choices.
There are many reasons people opt to rent rather than purchase a home. Some of the most common are:
- Flexibility and not being bound to a mortgage
- Not wanting to deal with the headaches and expense of home maintenance
- Running the numbers and deciding renting is a better financial option
- Enjoying the amenities and services that come with some rental units
- Enjoying the community and social aspect of multi-unit buildings
- The flexibility that comes from being able to “lock it and leave it”
While many different reasons push people to decide to rent, rising home prices and rising mortgage expenses are at the center of this decision. As the cost of homeownership continues to rise, it’s forcing people of all ages to reexamine their goals and look for alternatives to purchasing a home.
How Common Is the Trend of Renting by Choice
A 2024 Entrata survey of 2,000 renters showed some noticeable shifts in the mindset of renters. Of the 2,000 tenants surveyed,
- 41% said homeownership is no longer part of their idea of the American dream
- 20% said they plan to be renters for life
- 17% said they prefer renting because they’re not bound to a mortgage.
These results differed from previous years and indicate some clear shifts around the idea of homeownership. When analyzing this data, it’s important to note that all renters surveyed live in large multi-unit buildings in urban areas. It seems clear that renters in high-density, urban areas are changing their views on homeownership and renting.
Thus far, it’s less clear how much this change impacts renters and buyers in smaller and more rural areas. Time will tell whether this trend extends to all areas of the country or is unique to urban areas. Regardless, there are more renters today than any period since 1965 and nearly one third of renters have housing choices.
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How This Cultural Shift Impacts Real Estate Investors
Renters by choice are an excellent group for investors to target when purchasing or upgrading properties. Here are a few things to help your properties attract renters by choice:
- Properties in desirable mid-sized cities where renting is socially accepted and financially appealing will attract tenants who are renting by choice.
- Investors can target rent-by-choice baby boomers by offering more space and storage than other rentals on the market. This group wants at least 3 bedrooms, storage space, and parking for two vehicles.
- Investors can target rent-by-choice millennials by offering amenities and having properties near restaurants and entertainment.
- Rental properties must be priced competitively to attract renters by choice. Despite the many factors impacting housing decisions, the cost of homeownership is ultimately what is leading people to opt to rent. Overpricing a rental unit will drive away renters by choice.
- Consider single-family built-for-rent properties. More homebuilders are developing build-for-rent communities, that specifically target people who plan to be lifetime renters.
- Prioritize good property management and landlord-tenant communication. Tenants who are happy in their property are increasingly choosing to stay for the long term.
Maximize Your Rental Returns
While some areas are more impacted by this trend than others, renting by choice is increasingly common across the country. Investors in urban areas and desirable mid-size markets are particularly well-positioned to attract people who want to be longterm renters.
Once you find an investment property, ezLandlordForms can help you get the most out of it. We’re here to support you through every phase of the Landlord lifecycle, including Tenant Screening, Lease creation, and rent collection.
Create an account today and let us be the property management partner you need.
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By Kathelene Williams
As affordable housing remains a challenge across the U.S., fair housing laws aimed at preventing discrimination against low-income applicants have gained attention. Though not federally protected, the source of income discrimination is being addressed at state and local levels, particularly as it relates to residents relying on government subsidies or housing vouchers.
Coupled with the issue of “steering,” these practices not only violate fair housing principles
but also perpetuate inequality, thereby affecting the vulnerable populations most in need of
housing opportunities.
Steering occurs when housing providers subtly direct potential residents to or away from specific housing options based on income, race, or other protected characteristics. Despite being illegal, this practice often results in economic or racial segregation.
With increasing scrutiny on such behaviors, housing providers must be vigilant in their application processes, ensuring that they don’t inadvertently participate in discriminatory actions that violate both ethical standards and legal obligations.
UNDERSTANDING THE LEGAL LANDSCAPE
Discrimination based on income source is becoming an area of heightened legal focus. While
the Fair Housing Act protects individuals from discrimination based on race, color, religion, sex,
disability, familial status, and national origin, it does not directly address the source of income.
However, an increasing number of states and local jurisdictions have taken proactive steps to address this gap by passing laws that prohibit housing discrimination based on income source, particularly in relation to housing vouchers or government assistance programs such as Section 8.
In these regions, it is illegal for property managers to refuse an application solely because a potential resident’s rent payment comes from a subsidy program. This means that landlords and housing providers must accept all legal forms of income as part of their applicant’s financial qualifications and may not exclude individuals simply because their income comes from non-traditional sources, such as government programs.
STEERING AND ITS DETRIMENTAL EFFECTS
While discrimination based on source of income is overtly unlawful in areas where it is protected, steering is a more covert form of housing discrimination that can be harder to identify and combat. Steering typically manifests as subtle suggestions or behaviors that guide individuals away from certain properties or neighborhoods based on perceptions of their financial status.
Housing providers may not directly say that a unit is unavailable to someone with a low income, but they may recommend different properties they perceive as “more appropriate” for that individual.
Steering is harmful because it reinforces housing segregation and limits choices for residents,
especially those from lower income backgrounds. Furthermore, it violates fair housing laws and can lead to significant legal and financial repercussions for housing providers who engage in this practice, whether consciously or unconsciously.
BEST PRACTICES FOR PROPERTY MANAGERS TO AVOID DISCRIMINATION AND STEERING
To avoid both overt and subtle forms of discrimination, property managers must adopt clear and unbiased practices in resident screening and communication.
Below are some essential best practices that housing providers can follow to ensure fairness in their processes:
✔️ Property managers should implement standardized, objective resident screening
processes that are applied uniformly to all applicants.
✔️ They should ensure clear communication of financial requirements like income
to-rent ratios without excluding legal income sources, such as housing vouchers.
✔️ They must also stay informed of local laws regarding sources of income
discrimination and adjust policies to remain compliant.
✔️ Regular training is essential to avoid steering and ensure fair treatment for all applicants.
Additionally, internal audits help monitor compliance and a commitment to diversity fosters inclusive housing environments for individuals from all financial backgrounds.
CONCLUSION
As the legal landscape continues to evolve, housing providers must remain diligent in their
efforts to avoid both income-based discrimination and steering. Property managers who operate with transparency, fairness, and respect for the law are not only protecting themselves from legal risk but are also contributing to the creation of equitable housing opportunities for all.
By understanding and complying with local regulations, offering training on steering practices, and implementing fair screening processes, housing professionals can ensure they are fostering an inclusive and fair housing environment.
In this way, the entire housing industry can contribute to a more just and equitable system, where residents are judged on their ability to pay rent—regardless of the source of that income—and have equal access to housing opportunities across all neighborhoods and price ranges.
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By Beau Thoutt
Depreciation is a key tax benefit for rental property owners, and accelerated depreciation can help you maximize your deductions during the first years of ownership. Depreciation allows real estate investors to deduct the wear and tear of a property annually. The accelerated depreciation method lets landlords front-load deductions for eligible assets, such as fixtures and movable assets, to reduce taxable income in those years.
Accelerated depreciation on rental property can be complex, so let’s break it down. Today, we’ll cover these topics:
- Differences between straight-line and accelerated depreciation
- Two methods of accelerated depreciation
- Cost segregations studies
- Bonus depreciation
- Section 179 deductions
- Depreciation recapture
With these key elements, you can evaluate the depreciation strategy for your properties and determine whether accelerated depreciation is the right fit for your portfolio.
Highlight: Accelerated depreciation is an essential tax strategy for real estate investors, helping reduce taxable income and improve your cash flow.
Depreciation plays a major part in your tax prep, and we’re here for you! TurboTenant’s integration with REI Hub helps landlords like you accurately track expenses and deductions and simplify tax preparation. We designed our accounting software for rental property owners, so you can easily monitor and update your depreciation schedules and deductions. Sign up for a free account today!
Overview: Depreciation vs. Accelerated Depreciation
Depreciation helps landlords recover their investment in real property through annual pre-tax deductions. The most commonly used method is standard or straight-line depreciation, which spreads deductions evenly over 27.5 years for residential properties and 39 years for non-residential ones.
The deductions stop once an asset depreciates fully, even though the asset still has value. When an asset is sold, the depreciation schedule resets, and the new owner may deduct depreciation.
Another method of accounting for a property’s wear and tear is accelerated depreciation. This method provides several benefits:
- Greater reinvestment opportunities
- Improved cash flow during the early years of ownership
- Paper losses to carry forward
- Potential for a lower tax bracket
Instead of spreading out depreciation evenly over 27.5 years, accelerated depreciation fully depreciates eligible assets, like driveways or plumbing fixtures, in five to 15 years. The asset’s lifespan determines the depreciation schedule.
Highlight: Accelerated depreciation enables landlords to deduct assets like appliances and fixtures within five to seven years.
What is accelerated depreciation?
Accelerated depreciation is a faster method of reclaiming your initial investment. This method reclassifies assets so that they have a shorter lifespan than the useful life of the entire structure. You can deduct more of the total depreciation within the first five to 15 years of purchasing a rental unit.
Qualifying Assets for Accelerated Depreciation
These assets are eligible for accelerated depreciation:
- Appliances
- Decorative trim
- Driveways
- Electrical systems
- Fencing
- Landscaping
- Lighting
- Millwork
- Patios
- Plumbing fixtures
- Removable flooring
- Sidewalks
To identify qualifying assets, consider conducting a cost segregation study. These studies break down a property’s cost basis into components, determining their value and depreciation schedule. We’ll cover cost segregation studies in more depth later in this article.
Test Case: Straight-line vs. Accelerated Depreciation
Let’s look at an example to compare the effect of straight-line and accelerated depreciation on your bottom line. Here’s the critical information for our test case property:
- Property purchase price: $200,000
- Land value: $15,000
- Closing costs added to basis: $4,000
- Value of appliances and flooring: $9,000
- Value of patio: $10,000
Using straight-line depreciation, you’ll deduct $6,872.72 annually for 27.5 years. Accelerated depreciation allows you to deduct appliances and flooring over five years and the patio over 15 years, increasing initial deductions by $1,630.31.
Tax Impact of Accelerated Depreciation
The benefits of accelerated depreciation go beyond larger deductions. Depreciation is a non-cash deduction, so it doesn’t cost you anything or affect your cash flow—but it can affect your bottom line. Let’s say the rental unit from our example has a pre-tax net income of $8,000. With the accelerated depreciation deduction, the net income creates a loss of −$503.03. Remember, you still have a positive cash flow. It’s a paper loss only; you can carry that loss forward to use in future tax years.
Highlight: Accelerated depreciation provides rental property tax benefits by immediately reducing your tax liability without negatively affecting your cash flow.
Accelerated Depreciation for Real Estate
Accelerated depreciation looks at the useful life of assets individually instead of grouping a property’s depreciation into one lump sum each year. This accounts for assets that lose their value more quickly when they’re new and may require more repairs and maintenance when they’re older. Since assets like appliances and furnaces have a shorter life span than the building itself, that means investors can depreciate those items faster.
Your investment strategy can determine whether accelerated depreciation is right for you. Once you take accelerated depreciation, you’ll have a lower annual depreciation deduction in the future—a drawback for long-term investors. Some investors rely on accelerated depreciation more for short-term investment strategies. Others use it to increase cash flow during the early years, so it’s easier for them to scale their portfolio growth. Talk to your tax advisor to see if this strategy is right for your situation and goals.
Modified Accelerated Cost Recovery System
The Modified Accelerated Cost Recovery System (MACRS) is a depreciation system that allows investors to recover an asset’s capitalized cost over a specified period through annual deductions. With MACRS, fixed assets are put into classes that determine how long your depreciation schedule will last. Assets related to real estate generally fall into four classes:
- 5-year property: Appliances, carpeting, furniture, computers, office equipment, and vehicles
- 7-year property: Office furniture, like desks and file cabinets
- 15-year property: Land improvements such as fences, driveways, and roads
- Residential rental property: Buildings and structural components, like gutters, doors, or windows
Most real estate investors use MACRS’s general depreciation system, which uses the declining balance method. This method lets investors take larger depreciation deductions in the early years, then smaller amounts in later years.
Highlight: A landlord can classify new flooring under MACRS for five years rather than the property’s full depreciation schedule.
Types of Accelerated Depreciation
Double-Declining Balance Method
The double-declining balance (DDB) method allows higher deductions in the early years of owning an asset. This method doubles the reciprocal of the asset’s useful life and then applies the rate to the depreciated book value for the rest of the asset’s expected life.
Here’s the DDB method of accelerated depreciation formula, as applied to the appliances from our earlier example. They’re worth $9,000 with a five-year life, so they’ll have a reciprocal value of 1/5, or 20%. Doubling that rate gives us 40% to apply to the book value for depreciation.
$9,000 × 40% = $3,600 of depreciation in the first year
$5,400 × 40% = $2,160 of depreciation in the second year
The rate remains constant over time, but the value decreases because we multiply the rate with a lower depreciable base each year.
The double-declining balance method is most useful for assets with short lifespans. Front-loading the depreciation on these assets helps match the depreciation expense with the cost of the original purchase. Assets that lose their value more quickly work well with this method:
- Appliances
- Computers
- Office furniture
- Software
- Tools and equipment
Highlight: The double-declining balance method more closely matches up the depreciation deduction with the asset’s purchase, so landlords can offset more of the cost that year.
Sum of the Years’ Digits
The second way to speed up depreciation is with the sum of the years’ digits (SYD) method. This approach assigns a percentage to each year of a property’s useful life. The SYD method is better for properties expected to hold their value well but may need repairs later. Unlike the double-declining balance method, the SYD accounts for the asset’s salvage value.
This method front-loads an asset’s depreciation in the first year and gradually decreases it over its useful life. We calculate the percentage for each year by adding up the remaining years of the property’s useful life. For this example, let’s say you bought a vehicle for your rental property business. The vehicle initially costs $30,000, and you expect to sell it for $10,000 in five years.
| Year | SYD Rate Calculation | Depreciation Expense |
|---|---|---|
| Year 1 | 5 ÷ (5+4+3+2+1) = 33% | $6,666.67 |
| Year 2 | 4 ÷ (5+4+3+2+1) = 27% | $5,333.33 |
| Year 3 | 3 ÷ (5+4+3+2+1) = 20% | $4,000.00 |
| Year 4 | 2 ÷ (5+4+3+2+1) = 13% | $2,666.67 |
| Year 5 | 1 ÷ (5+4+3+2+1) = 7% | $1,333.33 |
Note that the percentages in the SYD formula should add up to 100. Use Excel’s SYD function or an online calculator to create a schedule for an asset’s SYD depreciation.
Highlight: The SYD method helps landlords balance an asset’s depreciation deductions with its repairs and maintenance costs, providing a more constant overall cost during the asset’s lifespan.
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Cost Segregation Studies for Real Estate
When you buy a residential rental property, the IRS allows you to depreciate the entire property over 27.5 years. This treats all the assets that make up the property as one. But, a rental property has many components. If you were to buy them separately, you could depreciate the individual assets over five to 15 years. A cost segregation study breaks down the components of a property and determines each one’s value and usable life. Here’s how a cost segregation study works:
- Hire an expert. You’ll need to work with a financial firm that has experience in engineering, construction, tax law, and accounting.
- Determine the property’s suitability. Your team of analysts will examine your investment property to determine whether it is a good fit for a cost segregation study.
- Provide necessary documents. The analysts will need information about your property, so be prepared to share documents like recent property appraisals, closing documents, or inspection reports.
- Analyze the property. Your team of experts will determine which elements of your property qualify for accelerated depreciation.
- Review the report. Once the analysis is complete, your team will give you a report outlining their findings. You can use the report to calculate your potential depreciation deductions.
A cost segregation study is best for properties purchased or built within the last 15 years. Once you’ve purchased, built, or remodeled a property, you can order a study anytime. However, you’ll get the most tax savings if you order the study before you file your taxes the same year you buy, build, or remodel the property.
If you didn’t order a study that year, it’s not too late. You can order a look-back study instead, and that allows you to take a catch-up deduction in one year. The catch-up deduction equals the difference between your original depreciation claim and what you could have claimed if you’d done the cost segregation study earlier. The IRS allows property owners to order look-back studies on properties they bought, built, or remodeled as early as January 1, 1987.
Highlight: Although a cost segregation study is an additional outlay, it’s essential for accurately evaluating assets and maximizing depreciation benefits.
100% Bonus Depreciation in Real Estate
Bonus depreciation is a one-time benefit that investors can claim to take up to 100% of an asset’s depreciation in its first year. This strategy applies to property purchased and put into service between September 27, 2017, and January 1, 2023. Let’s examine our example property again to see how bonus depreciation compares to the straight-line and accelerated methods.
| Item | Straight-line 27.5 Years | Accelerated Depreciation | Bonus Depreciation |
|---|---|---|---|
| Property cost basis | $185,000 | $166,000 | $166,000 |
| Depreciation expense | −$6,872.72 | −$6,036.36 | −$6,036.36 |
| Appliances and flooring cost basis | 0 | $9,000 | $9,000 |
| Appliance and flooring depreciation | 0 | −$1,800 | -$9,000 |
| Patio cost basis | 0 | $10,000 | $10,000 |
| Patio depreciation | 0 | −$666.67 | -$10,000 |
| Total depreciation expense | −$6,872.72 | −$8,503.03 | −$25,036.36 |
Section 179 for Landlords
Rental property owners can use Section 179 to deduct the full cost of certain assets, like appliances and office equipment, in the year of purchase, up to $1 million.
The IRS has some rules about this, though. You must purchase the assets for cash during that year. Unlike the bonus depreciation option, with Section 179, there is an income requirement. You may not use Section 179 to deduct more than your net taxable business income, but you can carry forward an overage amount to use in future years.
Section 179 allows you to fully deduct the costs of these assets:
- Appliances
- Computers
- Flooring
- Maintenance equipment
- Office equipment
- Office furniture
- Phones
- Rental furnishings
- Software
- Vehicles
Note that Section 179 does not apply to these assets:
- Gifted items
- Improvements like swimming pools, fences, or paved parking areas
- Inherited property
- Land
- Leased property
- Permanent structures, such as buildings or structural components
- Property located outside the US
- Property purchased from relatives or an organization you control
If your rental property is an investment only—not a business—then the IRS doesn’t permit you to take a 179 deduction. Talk with your tax advisor before taking a Section 179 deduction to make sure you qualify.
Pro tip: Use TurboTenant’s expense-tracking tools to make sure you take advantage of every available deduction.
Highlight: Section 179 lets landlords deduct up to $1 million in qualified assets in the purchase year.
Depreciation Recapture
Depreciation deductions help you offset the cost of an asset, but they come with a downside: depreciation recapture, a potential tax liability that comes with selling a property. This tax helps the IRS recapture some of the benefits taxpayers receive from depreciation deductions. When a property owner sells an asset, the IRS uses this simplified formula to determine the asset’s value:
Original purchase price – total depreciated amount = original value
Sale price – original value = taxable capital gains
These gains count as ordinary income, and the maximum tax on recaptured depreciation is 25%. Note that the maximum capital gains tax is 20%, depending on your tax bracket. If you use accelerated depreciation, you may end up owing more because of depreciation recapture.
However, there are strategies you can use to minimize depreciation recapture. Talk with your tax advisor about Section 1031 exchanges or Qualified Opportunity Funds. You could also align the sale of an asset with a year when you’re in a lower tax bracket. And remember, the initial cash flow benefits and re-investment opportunities frequently outweigh recapture costs.
Highlight: Selling an asset can trigger depreciation recapture taxes, but they can be managed with tax-planning strategies and are often offset by the early tax benefits.
Dig Deeper into Depreciation
- CalculatorSoup: Depreciation Calculators
- Investopedia: Modified Accelerate Cost Recovery System (MACRS): Explanation and Types
- IRS: Publication 527 (2023), Residential Rental Property
- IRS: Publication 946: How to Depreciate Property
- IRS: Section 179 Deduction
- REI Hub: Asset Class Life and Recovery Period Reference Sheet
- REI Hub: Calculating Basis & Depreciation for Personal Properties Put into Service
- REI Hub: Rental Property Asset Depreciation
- TurboTenant: A Guide to Maximizing Returns: Rental Property Depreciation
TurboTenant: Rental Property Depreciation Calculator
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Written by Kevin Kiene
Landlord insurance costs have risen significantly over the last decade. In just the last four years, the average cost of property insurance has increased by 25 to 45%.
Rising insurance costs directly cut into investors’ returns and can impact investing strategies. To ensure their properties stay profitable, Landlords need to be aware of changing insurance costs and have a plan for dealing with them.
Why Landlord Insurance Costs Are Rising
Several factors have impacted insurance costs in recent years. As a general rule, Landlords pay more for insurance than homeowners do. Insurance companies see Tenants as a higher risk than owner-occupants. To compensate for this risk, Landlord insurance typically costs 20-25% more than homeowners insurance.
That said, the cost of both Landlord insurance and homeowners has increased dramatically in the last decade. Several factors have led to this increase, including:
- Natural disasters: The number and intensity of natural disasters has increased over the last few decades. There has been a notable increase in serious hurricanes, wildfires, and floods. This increases costs and risks for insurance companies, which leads to higher premiums for policyholders.
- Labor and material shortages: Construction costs are up due to a shortage of skilled labor and materials. Supply chain disruptions have exacerbated this problem. It’s increasingly difficult to find skilled labor and materials for home repairs. The result is increased repair costs for insurers that push up premiums.
- Inflation: The insurance industry has not been immune to the impacts of high inflation, which is one factor driving up premiums.
- Increased claims for property damage: Insurers are seeing more claims for damage caused by vandalism and wear and tear. This increased expense for insurers is passed to policyholders through higher premiums.
- Insurers exiting markets: Some insurance companies are leaving high-risk areas. This pushes up insurance costs in those markets.
The Impacts Increased Insurance Costs Have on Investors
Rising insurance premiums mean increased operational costs for Landlords. This leads to decreased profits and less attractive returns. While some of the added expense can be passed on to Tenants through increased rent, this isn’t always the case.
Insurance costs are fixed. Even if a property is vacant or if rental markets soften, Landlords are responsible for paying insurance premiums. This cuts into cash flow and makes properties less desirable for investors.
Small Landlords and Landlords in high-risk areas are the most impacted by higher insurance rates. Property owners in California and Florida have been hit the hardest.
Extreme weather has caused insurance costs to double or triple in these coastal areas. Many Florida homeowners are paying four times the national average for insurance. In addition, it’s prompting some insurance companies to leave the areas altogether. Experts anticipate that Texas, Louisiana, and Colorado will see similar increases in the coming years.
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Tips for Dealing With Rising Insurance Costs
Insurance costs aren’t going down and will likely continue their upward trend. Landlords need to be aware of this and proactive about addressing it.
The good news is there are things you can do to minimize the impact insurance costs have on your investment portfolio. Here are some tips for dealing with this new reality:
- Shop around for insurance and compare rates. When it’s time to renew your policy, compare rates from three to four companies. This is a little extra work for Landlords but can result in significant savings.
- Upgrade your property. Any upgrades that make your house less of a risk to insurers can help keep your premium down. Some common upgrades to consider are:
- Hurricane-resistant windows
- Fire safety systems
- Alarm systems
- Surveillance cameras
- Smart devices like water leak detectors
- Increase your deductible. A higher deductible means a lower premium. If you’re comfortable paying more out-of-pocket when you file a claim, a high deductible is a good way to lower your premium.
- Stay on top of property maintenance. If you keep your property in good condition it will mean fewer claims and reduced insurance costs. Have a plan for preventative maintenance and follow it. Use a good Residential Lease Agreement that outlines maintenance responsibilities and enforce all Lease provisions.
- Educate your Tenants. At the start of a tenancy, show your Tenants where the water shutoffs are. You should also discuss fire safety – including using fire extinguishers and testing smoke detectors. It’s your job to ensure your Tenants have the information they need to keep your property in good condition.
- Evaluate what type of policies you need and identify any coverage you can skip. For example, if your house has significant safeguards against flooding, you may not need to pay for flood insurance.
- Consider property risks when adding to your portfolio. When buying new rental properties, evaluate the area’s risk for hurricanes, flooding, wildfires, and earthquakes. If you’re purchasing in a high-risk area, make sure that the property will cash flow even if insurance costs continue to rise.
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By Frank Jachetta
As the rental landscape shifts, landlords are encountering a growing number of non-traditional tenants, including freelancers, recent graduates, and international students. According to Statista, the U.S. workforce is projected to include 86.5 million freelancers by 2027, accounting for 50.9% of all workers.
This shift underscores the need for landlords to be prepared to accommodate renters who may not have conventional income streams or employment histories, presenting both an opportunity to expand the tenant pool and a challenge in mitigating rental income loss as a result of rent defaults.
However, with the right tools and strategies, landlords can confidently welcome these tenants
while safeguarding their rental income and profits. Here are the top three ways to protect your rental income and minimize risk when renting to non-traditional tenants.
1 – Utilize Rent Coverage from The Guarantors
For many landlords, traditional screening criteria such as credit scores and steady income sources are vital for assessing risk. But with today’s growing diversity in renter profiles, including unique work arrangements, not every qualified tenant will meet these standards. That’s where The Guarantors’ Rent Coverage product comes into play.
The Guarantors provides coverage that acts as a safety net for landlords by protecting against losses from defaults, damages, vacancies, and lease breaks—all without increasing a landlord’s operating expenses. This service is particularly beneficial when renting to freelancers, gig workers, international students, recent graduates, or non-U.S. citizens, who might not have an established credit score and/or consistent income flow.
For example, consider an international student studying abroad in the U.S. with minimal income and no credit history. With The Guarantors’ Rent Coverage, landlords can feel secure, knowing that missed rent payments will be covered.
Instead of spending your valuable time chasing down guarantors, The Guarantors serves as cosigner, saving you time and minimizing your losses. This solution can be particularly advantageous in markets where student housing is in high demand or properties near universities, where landlords might see high turnover and fluctuating income risk.
The benefit of this coverage extends to tenants far beyond the student demographic; for example, for a freelancer who may not yet have a regular, full-time income, this product serves as a buffer against potential income instability.
Rent Coverage from TheGuarantors can also serve as a bridge for non-U.S. citizens who may have a high-paying job but lack the credit history or social security number typically required for leasing. By stepping in as a guarantor, TheGuarantors makes it possible for landlords to qualify these tenants without added risk.
2 – Implement Comprehensive Tenant Screening
Tenant screening is a foundational step in the rental process that provides landlords with valuable insights into a tenant’s reliability. But not all tenant screenings are created equally when evaluating non-traditional renters. It’s essential to use a comprehensive screening
service that can provide a fuller picture of a tenant’s ability to pay, even if they don’t have a traditional credit or income history.
For example, landlords can call a current employer or previous landlord, to get real time information even if the applicant has no social security number or credit history. This approach can reveal signs of responsibility and financial stability that might not appear in a traditional credit check.
In addition, landlords can order a criminal history report from AAOA using only the applicant’s name and date of birth or contact AAOA for an international tenant screening quote. Landlords can also review bank statements or tax returns, helping to paint a more accurate picture of the
applicant’s suitability as a tenant. Combining tenant screening tools with added, incremental risk mitigation methods like TheGuarantors’ products enables landlords to make better informed decisions when renting to non-traditional renters.
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3 – Offer Deposit Alternatives with TheGuarantors’ Deposit Coverage
Security deposits are a tried-and-true way to safeguard rental income against damage and defaults. However, for some renters, especially those with limited liquidity, a traditional deposit can be a significant barrier. TheGuarantors’ Deposit Coverage product provides a flexible solution that benefits both landlords and tenants, offering tenants a lower-cost deposit alternative while offering landlords robust financial protection.
Instead of requiring renters to pay a full deposit upfront, TheGuarantors’ Deposit Coverage allows tenants to pay a smaller, one-time fee. This product is especially helpful for tenants who might lack the cash reserves for a hefty security deposit, allowing them to keep more of their cash and lower move-in costs. For landlords, it provides the same financial coverage as a traditional deposit, including protection against property damage and unpaid rent, while also helping to attract a broader pool of renters.
For example, freelancers with irregular income or retirees with sufficient savings but no steady
income can move in without paying a hefty deposit, reducing vacancy times for landlords. For
landlords, it’s a win-win: they retain the financial protection they need while offering renters a
convenient, more affordable entry to housing.
CONCLUSION
As the rental landscape changes, more non-traditional renters, including freelancers, recent graduates, and international students, are entering the market. Landlords who can adapt their leasing strategies to attract and retain these renters are well-positioned to benefit from a broader, more diverse tenant pool.
Using tools like TheGuarantors’ Rent and Deposit Coverage products provides financial assurance when renting to high-potential but non-traditional tenants. Coupled with AAOA’s comprehensive tenant screening services, these solutions allow landlords to approach each applicant with a nuanced understanding of their reliability and ability to meet financial obligations.
Incorporating these strategies not only helps protect rental income but also enables landlords to tap into new, promising markets with confidence. By focusing on innovative solutions like these, landlords can maintain a healthy occupancy rate, mitigate financial risks, and ultimately, drive long term profitability in a competitive rental market.
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Listen On:
We are lucky enough to have a general contractor who has been a part of our team for over 15 years.
This week on the podcast, we will be discussing all of the tips our contractor, Jim, has shared that have helped us stay on top of inspections, preventative maintenance, and what to know about hiring general contractors.
We share real-life experiences from our rental properties and offer practical tips to help self-managing landlords find reliable, skilled contractors for their maintenance and renovation projects. From hiring a licensed general contractor to ensuring they hold proper insurance coverage; this episode covers everything you need to know to protect your investment and maintain tenant satisfaction.
What You’ll Learn in This Episode:
✅ Why using a licensed general contractor is crucial for safety and compliance
✅ Where to find reputable contractors and get multiple estimates
✅ The difference between being an additional insured vs. an interested party
✅ How to handle tenant communication during renovations
✅ Why detailed contracts and written agreements are essential
✅ Tips for working around tenant schedules and minimizing disruptions
✅ How routine inspections help prevent costly repairs
✅ Key maintenance tips learned from years of working with contractors
Key Takeaways:
🔹 Stacie and Kevin highlight the importance of working with experienced professionals like their trusted contractor, Jim, who ensures all work meets building codes and legal requirements.
🔹 Learn how to vet contractors by checking licenses, insurance, and references, plus why it’s essential to get everything in writing.
🔹 Communication is key—whether it’s setting clear expectations with your contractor or keeping tenants informed about upcoming maintenance or repairs.
🔹 Take advantage of tenant vacancies to complete larger projects and avoid inconveniencing current renters.
🔹 Routine inspections can help landlords catch potential issues early. Stacie and Kevin share how Jim walks through their units, checking for leaks, unauthorized pets, and cleanliness issues that could lead to pests.
🔹 Smart maintenance practices like regular garbage disposal use, timely water line replacements, and proper appliance management can save landlords thousands in repairs.
🔹 Labeling breaker boxes and paint colors behind switch plates can save time and money during repairs and touch-ups.
🔹 When remodeling, simple upgrades like reinforcing toilet paper holders with wood backing can prevent future issues.
Resources & Free Downloads:
📌 Watch our DIY Garbage Disposal Fix Video & Insinkerator Garbage Disposal Universal Wrench
📌 Link to Newsletter to see before and after floor photos
📌 KwikSet Rekey Set & YouTube How to Video
📌 Porc-A-Fix Porcelain Sink Repair & How We Repaired Our Sink Video
📌 Check out the kitchen faucet we use
📌 Watch our video on reinforcing TP holders
📌 Listen to Episode 4 for more on inspections
📌 Learn about rental reserves in Episode 28
Connect with Us:
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- How to Deal with Rising Landlord Insurance Costs
Landlord Insider is a newsletter produced by Your Landlord Resource with rental property tips, landlord specific articles, and podcast links.Read more - Strengthening Policies, Procedures, and Written Communication
Tip of the Week Start the landlord – tenant relationship off on the right foot. When tenants move in, there is stress, chaos, and it's hard for them to find basic necessities. Our small token of appreciation is left on the kitchen counter to greet them and let them know we appreciate them as a tenant. While we include snacks, we also include items we want them to use in the unit. Our welcome basket includes: a blue sponge with a note asking them not to use the green abrasive ones, touch up…Read more
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Tax season has a way of sneaking up on us, no matter how prepared we think we are. As self-managing landlords, we juggle property maintenance, tenant communications, and rent collection—all while keeping up with our books. If you’re anything like me, you’ve had at least one of those years where tax time rolls around, and you’re scrambling to gather receipts, track expenses, and make sense of your income statements.
That’s exactly why I turned to QuickBooks back in 2016, and I can confidently say it’s been a game-changer. If you’re a landlord who’s been procrastinating on bookkeeping or tax prep, QuickBooks can be the tool that saves you time, organizes your financials, and helps you file your taxes without the last-minute panic.
Better yet, when you sign up through our partner link (https://quickbooks.partnerlinks.io/3ypecmaw68nx), you’ll get 30% off for six months and 30 days of QuickBooks Live Expert Assisted, where a professional can help you get everything set up correctly. This is especially beneficial if you are setting up an accounting system for the first time and need assistance with such areas as creating your chart of accounts (numbers assigned to your income, expenses, etc.).
QuickBooks: A Time-Saving Tax Prep Tool for Landlords
When you own rental properties, bookkeeping can quickly become overwhelming—especially if you manage multiple units. With QuickBooks, you can streamline your financial tracking, organize expenses, and ensure your tax filings are accurate and stress-free.
Here’s how QuickBooks can make the tax season easier:
1. Expense Tracking & Organization
One of the biggest headaches for landlords is keeping track of expenses. Property repairs, utility bills, HOA fees, and even mileage for property visits all of these need to be logged for accurate tax deductions. With QuickBooks, you can:
- Connect your bank accounts so transactions are automatically imported and categorized.
- Scan receipts on the go with the mobile app, ensuring nothing gets lost.
- Tag expenses to specific properties for easy end-of-year reporting.
No more shuffling through a pile of receipts or manually entering numbers into spreadsheets at the last minute!
2. Invoicing & Rent Collection
Manually tracking rent payments and late fees can be tedious, but QuickBooks helps automate the process. As a landlord, you can:
- Invoice tenants directly for rent, utilities, or other charges.
- Schedule recurring invoices for the entire lease term so tenants receive their rent reminders automatically each month.
- Apply automatic late fees if payments aren’t made on time (depending on your lease agreement and local laws).
This automation means you spend less time chasing payments and more time focusing on growing your rental business.
3. Organizing Multiple Properties with Tags & Classes
If you manage more than one property, QuickBooks makes it easy to keep track of financials for each unit. The Tags and Classes feature allows you to:
- Assign income and expenses to specific properties or units.
- Generate separate reports for each rental to see which properties are most profitable.
- Make tax preparation seamless by categorizing deductions correctly.
Instead of scrambling to separate transactions for each property, everything is neatly organized from the start.
4. CPA Access & Seamless Tax Filing
One of my favorite features of QuickBooks Online is the ability to grant access to my CPA. Rather than gathering reports, printing statements, and emailing spreadsheets back and forth, my CPA can log in directly and extract all necessary information for tax preparation.
This means:
- Less stress for me. No more last-minute scrambling to compile documents.
- More accurate tax filing since everything is properly categorized throughout the year.
- Potential savings because my CPA spends less time sorting through my records, reducing billable hours.
Don’t Wait Until the Last Minute—Start Using QuickBooks Today!
If you’ve been managing your rental property finances manually or dreading tax season, now is the perfect time to switch to QuickBooks. Not only does it help with tax prep, but it also simplifies day-to-day bookkeeping, invoicing, and expense tracking.
And remember—when you sign up through our partner link (https://quickbooks.partnerlinks.io/3ypecmaw68nx), you’ll receive 30% off for six months and 30 days of QuickBooks Live Expert Assisted to help you get started with expert guidance.
Save yourself time, reduce stress, and make tax season a breeze with QuickBooks. Trust me, your future self will thank you!
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By John Triplett
As the economy grows and the job market remains strong, what will 2025 look like for the multifamily industry?
“We expect multifamily advertised rents to increase moderately in 2025, by 1.5% nationally,” writes Yardi Matrix writes in its winter report. “Many of the underlying conditions that drove strong demand should persist in 2025. Most notably, weak buying power and the high costs of homeownership continue to keep potential buyers in apartments longer.”
While 2025 looks good, the market faces some questions, “including the impact of potential economic policy changes, how long it will take to absorb deliveries in high-growth Sun Belt markets, and whether interest rates will fall enough to revive transactions and avoid distress,” the company says in the Multifamily Outlook for 2025.
Changes Are Coming In 2025
Yardi Matrix says the incoming Donald Trump administration will implement a new policy course.
“Some campaign policies such as relaxing regulations, eschewing rent control and reducing taxes should have a positive impact on multifamily. However, tariff threats and promises of large-scale deportations could raise prices and lower apartment demand,” the report says.
Highlights of the report
- In terms of advertised rents, metros in the Northeast and Midwest will continue to lead, boosted by positive demand and weak supply growth.
- The large number of properties under construction will support robust supply growth again in 2025, but the dwindling number of starts will stifle deliveries in 2026 and 2027.
- Supply growth is distributed unevenly, as 12 to 15 high-growth markets account for a large percentage of deliveries.
- At the same time, a national housing shortage has built up over decades, making development necessary to address affordability.
- Activity in capital markets will be heavily dependent on the direction of interest rates. Increased trading activity is expected in 2024, but rate cuts likely won’t be fast or deep enough for a strong rebound in 2025.
- At the same time, rate cuts won’t be enough to significantly alter the loan-default issue. Some loans that have been extended in the hope of imminent lower rates will default, though that cohort is not expected to be large enough to create a systemic crisis.
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The Elephant in the Room?
Yardi Matrix says, “The elephant in the room for the forecast: a new administration that promises to bring about numerous policy changes. Growth should benefit from some new policies” such as extension of tax cuts and relaxing of some regulations.
- The government is likely to drop regulation of multifamily-fee management, while policies that stymie development will be loosened or not strictly enforced, and funding of affordable housing programs such as opportunity zones and the Low-Income Housing Tax Credit should remain intact or be expanded.
- The President-elect has also expressed his willingness to open some federal land to housing construction, which will reduce costs, as land prices alone can be significant barriers for developers.
“But some proposed policies could be detrimental to multifamily housing. Trump’s tariffs could not only elevate overall inflation but increase the cost of building materials, which could hinder development and possibly lead to retaliation from other countries.
“Also, higher costs could inhibit the Federal Reserve from cutting interest rates, which are such a key hurdle to commercial real-estate transactions.
The campaign promise for large-scale deportations of undocumented immigrants is another policy with potential negative impact as it could reduce housing demand and construction workers and introduce other areas of uncertainty. “Immigration, both legal and illegal, has been a source of demand for multifamily,” Yardi Matrix writes in the report.
The Work-from-Home Question
Work-from-home is another driver of rental demand, even as calls to return to the office become more prevalent.
Roughly two-thirds of office workers are either hybrid or fully remote, which translates into more people wanting space for home offices. Work-from-home also boosts demand in suburbs and less expensive metros.
Read the full report from Yardi Matrix here.
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