By Jeff Rohde
A rental property pro forma is a comprehensive document that projects the income and expenses of a particular property. It typically offers the prospective buyer a crystal-clear picture of their potential returns.
Unlike actual financial statements, which record past transactions, a pro forma is forward-looking. It’s a blueprint, a hypothetical scenario based on a few well-informed assumptions about how a property may perform financially.
Understanding and creating a robust pro forma can significantly impact your expectations and ultimately, your investment decisions.
Sellers often use pro formas to present their properties in the best light, highlighting potential for growth and profitability that may not be reflected in past or current financials. Buyers benefit by making their own assumptions and peering into the future to see the viability of an investment before committing hard-earned money.
To help save you time when creating one for yourself, we provide a free pro forma template below. We also break down its components, analyze a buyer’s and seller’s perspectives of the document, and share pitfalls to avoid.
Key components of a pro forma template
The following pro forma components are some of the key pieces you’ll want to use to paint a realistic picture of a property’s financial potential. This in turn creates a foundation for making informed investment decisions. Here’s a closer look at each section…
Revenue sources
When detailing revenue sources, a pro forma’s primary focus is the property’s rental income. However, it’s crucial not to overlook additional revenue streams that can boost your bottom line, including:
- Late fees
- Parking and storage fees
- Charges for lost or replacement keys
- Income from appliance or furniture rental
- Laundry facilities in a multifamily unit
- Roommate fees and rent
- Pet fees and rent
Accurately projecting these figures requires market research and an analysis of comparable properties to help ensure your estimates are realistic and competitive. Consider using tools like the Zillow Rent Estimate Calculator, Rentometer, or Stessa’s Rent Estimate reports.
Operating expenses
This category includes all costs necessary to maintain and manage your investment, such as:
- Property management fees (which can vary depending on the level of service provided)
- Leasing fees paid to a real estate agent or property manager
- Maintenance and repair costs
- Property taxes
- Landlord insurance premiums
- Utilities not covered by tenants
- Landscaping
- HOA fees
- Professional fees like legal and accounting
Accounting for vacancy rates is also wise, meaning you should estimate how long and how often the property might sit empty between tenants.
Financing details
For many investors, purchasing a rental property involves securing financing. In your pro forma, detail these expenses, including:
- Loan amount
- Interest rate
- Term length
- Down payment
- Closing costs
- Any required escrow payments
These factors influence your monthly mortgage payments and the net cash flow generated by the property.
Capital expenditure (CapEx) forecasts
Capital expenditures include major repairs or improvements that increase the property’s value and/or extend its life, such as:
- Roof replacement
- HVAC updates
- Kitchen remodels
- Funds used to make a property rent-ready at the time of purchase
Unlike routine maintenance expenses, CapEx investments are not made annually. They’re used for long-term property value preservation and growth. However, consider setting aside a portion of your rental income in a reserve account each month to ensure the money is available when and if you need it.
Accurately forecasting these expenses in your pro forma helps ensure you’re prepared for significant future outlays, preventing an unexpected impact on your cash flow or paying out of pocket from personal funds.
A free pro forma template for rental properties
To help streamline your investment analysis, use our free rental property pro forma template. Incorporating the key components into this template—revenue sources, operating expenses, financing details, and CapEx forecasts—helps you create a detailed financial overview of your rental properties.
To download the template in your preferred format, click either link below. Whether you’re analyzing a new investment opportunity or assessing the ongoing performance of current properties, this template can become a vital part of your real estate investment toolkit.
Download the complete rental property pro forma template in Excel here.
Download the complete rental property pro forma template in Google Sheets here.
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How to use a rental property pro forma
A well-crafted pro forma is more than mere numbers; it offers a narrative of what a property may be able to achieve over time.
For buyers, a pro forma is a lens through which they can assess an investment’s potential returns and valuation. Sellers use it to outline their property’s strengths and future financial prospects, in the hopes of making the opportunity more attractive to interested investors.
A buyer’s pro forma: Strategic evaluation for long-term growth
When buyers analyze a rental property through a pro forma, their goal is typically to unearth opportunities and risks that aren’t immediately apparent. Here are a few key factors to evaluate in a pro forma if you’re a potential buyer:
- Market rent vs. operational efficiency: Along with projecting rental income, assess how the property’s unique features or location contribute to achieving or surpassing market rent while maintaining operational efficiency. Evaluate how minor upgrades or changes in management could significantly enhance the net operating income (NOI).
- Dynamic financing scenarios: Go beyond static financing details to model different scenarios, including down payment amounts, interest rates, and the impact on cash flow. Consider the effects of refinancing options down the line, especially if the initial terms are adjustable or if market conditions change.
- Growth potential analysis: Use the pro forma to simulate various market conditions, such as property tax rate changes or insurance costs, and their impact on the property’s long-term valuation. This helps identify the property’s immediate and sustained ROI, factoring in market volatility.
A seller’s pro forma: Demonstrating unique value and future upside
Sellers can use the pro forma to highlight aspects of the property that might be overlooked or undervalued. Here are a few ways to create a compelling story for interested buyers:
- Customize to highlight strengths: Tailor the pro forma to showcase the property’s unique strengths, such as energy-efficient installations that can reduce long-term operating costs or zoning advantages that may allow for future expansion or alternative use.
- Scenario planning: Provide prospective buyers with a scenario-based pro forma that illustrates the financial outcomes of different strategies, like possibly transitioning from long-term to short-term rentals or the impact of proposed local developments on property values.
- Highlight economic moats: Utilize the pro forma to discuss non-financial factors that serve as economic moats, such as major employers, emerging technology hubs, or nearby infrastructure projects that could enhance accessibility and desirability, increasing the property’s competitive edge in the rental market.
Metrics to measure investment performance
A well-prepared rental property pro forma can offer a detailed view of specific metrics, which help evaluate the health and potential of your investment. Here are some key financial benchmarks to include.
Cash flow analysis
A cash flow analysis measures the net amount of cash transferred into and out of a property investment over a certain period. It’s essential for understanding your investment’s liquidity and immediate financial health.
Example
Suppose your rental generates $2,000 in rent monthly, and your total monthly expenses (including mortgage, taxes, insurance, and maintenance) are $1,500. Your monthly cash flow would be $500.
Net operating income (NOI)
NOI is a property’s total income minus its total operating expenses, excluding financing costs. This figure helps evaluate the property’s intrinsic income-generating capabilities, independent of how it’s financed, providing a pure look at its operational effectiveness.
Example
If your rental brings in $24,000 annually in rent and incurs $8,000 in annual operating expenses, the NOI would be $16,000.
Capitalization rate (Cap rate)
The cap rate offers a snapshot of a property’s yield within a specific time frame, calculated by dividing the NOI by the property’s current market value. It’s instrumental in comparing the relative value of similar properties in the same market and understanding market trends.
Example
For a rental valued at $300,000 with an NOI of $16,000, the cap rate would be approximately 5.33% ($16,000/$300,000). A higher cap rate may indicate a higher return but may also come with higher risk. A lower cap rate suggests a potentially safer investment in a more mature market that may sometimes offer greater upside on appreciation.
Return on investment (ROI)
ROI measures the overall profitability of an investment, calculated by dividing the net profit of the investment by the initial cost. It provides a high-level view of the investment’s performance over time.
Example
Assume you bought a rental for $250,000 and, after a few years of operation and appreciation, sold it for $350,000. After subtracting all costs (e.g., closing fees and a real estate commission), your net profit is $80,000. The ROI would be 32% ($80,000/$250,000), illustrating the investment’s growth in value beyond its basic cash flow.
Cash-on-cash return
This metric calculates the cash income earned on the cash invested in a property, offering a clear picture of the investment’s net cash yield based on the actual cash outlay. It’s useful for evaluating the effectiveness of your cash investment in generating income from rental real estate versus alternative investments.
Example
Say you made a down payment of $50,000 on a rental property, your annual cash flow after all expenses (opex + capex) was $6,000 in the first year. Your cash-on-cash return would be 12% ($6,000/$50,000) for the year.
Common pitfalls to avoid
You can ensure a more reliable analysis of your rental property by avoiding these common mistakes:
- Overestimating rental income and rent increases: Assuming you’ll rent your property consistently at top dollar and your rent will continually rise is tempting but overlooks market fluctuations, potential vacancies, and periods when rent increases may not be feasible due to economic conditions or local rent control laws. Use sound estimates based on current and realistic market data to avoid overly optimistic projections.
- Underestimating expenses and the effect of inflation: Operational and maintenance costs can often be higher than you planned. Additionally, inflation can significantly increase these expenses over time. Failing to account for regular maintenance, capital expenditures, and inflation may result in underestimating ongoing costs, affecting the long-term profitability of the investment.
- Ignoring market dynamics and trends: Real estate markets are influenced by macroeconomic factors and local trends, including job growth, population shifts, and industry expansions or contractions. Ignoring these can lead to inaccurate future property value assessments and rental demand. Including a sensitivity analysis in your pro forma can help account for various market scenarios.
- Property-specific risks: Every property comes with unique risks, such as tenant turnover, unexpected major repairs, or changes in neighborhood desirability. For instance, high tenant turnover can increase vacancy rates and maintenance costs, impacting your bottom line. Assessing these risks upfront can help mitigate surprises down the road.
- Failing to plan for vacancies: Thinking you’ll have 100% occupancy year-round is unrealistic. Vacancies can occur for various reasons like market downturns, seasonal fluctuations, or the time needed for repairs and finding new tenants. Not accounting for these vacancy periods can inflate expected income and distort investment performance metrics.
- Neglecting cash reserves: Many investors neglect setting aside enough cash reserves for emergencies or unforeseen expenses. Without this safety net, one significant repair or a few months of vacancy can put undue financial strain on the investment, potentially forcing a sale at an inopportune time.
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Provided by Rental Housing Journal
Here is a look at 4 kinds of front doors you can choose for your rental property when you are making repairs or replacing and the pros and cons of each.
The look, feel and features of a rental property’s front door are more important to tenants than landlords and property managers might think.
The front door is one of those subtle elements that can actually make a big difference to the overall feel of a property. Experts point out that a property’s front door can actually be responsible for significant fluctuations in the value of the property.
Potential tenants will likely take notice of a damaged, flimsy or older-looking entryways. They could interpret this as a sign of lack of upkeep for the property or concern for the well-being of tenants.
Additionally, a damaged front door can make it easy for burglars to identify a certain property as one that they could successfully break into.
Pros and cons of front door material for your rental property
Purchasing a brand-new front door is not a routine expense. So, if you are thinking of replacing old doors or upgrading doors on your property, here are some front door materials to consider:
Pros and cons of wooden front doors
1. Ultra-customizable – wooden doors can be tailored to match countless designs, shapes and color schemes, while also being able to house additional decorative elements, such as glass mosaics and panels
2. Flexible price points – the unique natural look of wood can be accessible for most budgets as different varieties of woods are available at a variety of price points
3. Unique look – Many property owners and designers find wood to be worth the investment as it presents a naturally variegated and “high-end” refined look that other man-made materials cannot replicate
Cons:
1. Weather-sensitive – wood is a material that is prone to be affected by its exposure to the weather and other environmental elements. Direct sunlight can fade the natural coloring of the wood, and high-moisture levels in the air (or from precipitation alone) can lead to warping and even rotting of the wood
2. High-maintenance – to ensure that the wood ages well and without being damaged by the natural elements discussed above, it’s essential to regularly treat the wood. Tinctures and sealants should be regularly applied by a reliable maintenance professional, which will be an added maintenance cost to consider.
3. High-price for top-quality – some wood varieties are naturally more resistant and sophisticated-looking, which contributes to their one-of-a-kind appeal and/or ability to last through the years without needing major attention. Premium varieties, such as mahogany or cedar, will be considerably pricier.
Pros and cons of steel front doors
1. Super safe – when it comes to property intrusions, reinforced steel doors are known to be safest against breaches, allowing for increased confidence in a property’s overall defenses against unwanted visitors.
2. Affordable but effective – when considering its wood and fiberglass counterparts, steel stands out as being far more affordable, while still offering the safety element that it shares with fiberglass and being much more low-maintenance than wood and its issues with exposure and aging.
Cons:
1. Insulation is not its forte – steel is a known conductor of heat and electricity, which makes it problematic when it comes to wanting to keep a property’s interior temperature at a set level. Steel will contribute to heating up the space when heated by outside temperatures and/or sunlight and will struggle to keep the cold out during the winter months. Insulating layers and treatments can improve this downside, but they will come at an added cost.
2. Denting – steel can easily become dented or chipped following impact, and this often results in unappealing marks that are difficult to completely erase. To effectively get right of the unappealing look of those visible surface damages, an entirely new door might need to be purchased.
3. Rusting – while steel is not as sensitive to moisture as wood, it can easily rust over time as it is exposed to moisture and precipitation. Our experts encourage consulting the manufacturer to understand whether and how professional treatments can help with rustproofing.
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Pros and cons of glass front doors
1. Unique look – solid glass doors can be made to match a great variety of preferred styles, with varying cuts, shapes and opacity available to be reproduced as desired.
2. Luminosity – glass allows natural light to enter the home like no other material can, which some property owners find to be a valuable addition to the look and feel of their property.
Cons:
1. Fragility – experts agree that glass is naturally delicate even when it is reinforced, making it essential to be mindful of potential scratches, cracks and chipping that could easily occur.
2. Privacy – while some might be excited about the way glass allows for natural light to illuminate the home, some can be put off by the way glass makes it easy for passerby’s to peek inside a property
3. Questionable safety factor – glass door made for the purpose of being utilized as a property’s front door are generally reinforced to make it difficult for intruders to gain access by easily shattering the glass surface. This being said, glass remains rather fragile and much easier to break than wood, steel, and fiberglass combined.
Pros and cons of fiberglass front doors for your rental
1. Versatile – fiberglass paneling is man-made, which allows for creating a variety of unique textures and styles. Fiberglass doors can be made to resemble a natural wood grain, or also present smooth and glossy or matte and satin surfaces for distinguished coloring that can match a variety of architectural elements.
2. Resistant – many property owners choose fiberglass front doors as opposed to wood because they are not vulnerable to discoloration and damage from exposure, while still closely resembling the look of wood. They are also more resistant to wear and tear than their steel counterpart.
3. Low-maintenance – these doors should be maintained occasionally as they age, but they do not require sealants to be regularly applied, which does help with saving considerable amounts when it comes to maintenance expenses.
4. Secure – our experts confirm that fiberglass doors are just as secure as their steel counterpart, which allows them to stand strong and dent-free following forced impact
5. Efficient – while all door types can be treated to add insulating properties, fiberglass vastly surpasses wooden and steel door when it comes to insulation. While steel will always struggle with efficiently insulating and wood is vulnerable to temperature and humidity changes, fiberglass is not affected by any of these issues. Having optimal insulation can help ensure lower energy use and expenses as it allows for a property to easily remain hot or cool temperatures as desired.
6. Affordable – while aesthetic additions – such as integrated wood or glass decors – will rise costs, basic fiberglass door models are generally rather affordable.
Cons:
Pricey add-ons – fiberglass doors are fairly affordable. But can get expensive as they are further customized with the addition of decorative elements or coats.
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Source: Disrupt Equity
In the complex world of investment opportunities, the multifamily real estate sector is poised for success in 2024. With its multifaceted capacity to deliver stability, growth, and tax benefits, residential properties that serve multiple inhabitants are more than a physical asset – they’re a versatile financial instrument. Here, we explore why those with a financial eye to the future should consider multifamily real estate as a linchpin in their investment portfolio.
Maximizing Benefits Through Leveraging Debt
Multifamily properties offer several strategic advantages that single-family homes simply cannot match. The first and arguably most significant is debt leverage. With a single down payment, an investor can control a much larger asset through a loan, magnifying the potential return on investment.
Furthermore, fixed rate debt offers a hedge against future interest increases, a particularly compelling feature amidst the whispers of economic policy shifts. Coupled with the fact that tenants often cover the costs of this debt through rent, the investor enjoys not only a stronghold against inflation but immediate cash flow as well.
In the race for financial independence, few things are as satisfying as an asset that generates its own passive income to pay down the mortgage. For multifamily properties, this is a given, positioning the investor favorably when it comes to long-term wealth accumulation.
Cash Flow in Multifamily Investments
An often underappreciated yet vital aspect of multifamily real estate investments is the potential for substantial cash flow. Over time, as the principal is paid down and property values, ideally, appreciate, the monthly income generated from tenants begins to exceed the expenses associated with property management, maintenance, and mortgage payments. This surplus is what investors refer to as cash flow – the real-time return on investment that lands in your pocket each month.
For those investors committed to the long haul, this shift towards positive cash flow is a significant milestone. It represents not only a return on investment but also an increase in the asset’s equity. The longer you are in the deal, the greater the potential for cash flow becomes. This growing income stream can provide financial stability and the flexibility to reinvest in additional properties, pay down existing debts faster, or fund personal endeavors. In essence, enduring the initial years where cash flow might be leaner can set the stage for a potential windfall of passive income, underscoring the value of patience and strategic foresight in multifamily real estate investing.
The Phasing out of Bonus Depreciation
Bonus Depreciation offers specific advantages, particularly to multifamily investors, who stand to gain significantly. A key component of multifamily investment is depreciation, a method allowing the gradual tax deduction for real estate depreciation. There are several reasons to invest in 2024, the main reason being that Bonus Depreciation is being phased out.
- Current Legal Provisions: The existing IRS tax code permits investors to utilize 60% bonus depreciation for certain qualifying improvements. In 2025 that drops to 40% and will be completely phased out by 2027.
- Future Policy Adjustments: The availability of these deductions is anticipated to decrease in the forthcoming year, underscoring the urgency for investors to engage with the multifamily market promptly to capitalize on these benefits.
- Enhanced Fiscal Benefits: When these tax incentives are combined with other financial advantages inherent to multifamily investments, such as mortgage interest deductions and business expense deductions, the tax efficiency of the multifamily sector becomes particularly evident.
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Rental Rates and the Inflation
Given the Federal Reserve’s considerable expansion of the money supply, 2024 is a year characterized by inflation. In such a climate, investors in multifamily properties stand to gain a strategic advantage.
Rent growth over time plays a crucial role in countering the effects of inflation for multifamily property investors. As rental rates increase, investors can more effectively manage and offset the cost increases in property maintenance and operations, thereby preserving the profitability and value of their investments in an inflationary environment.
Investors in multifamily properties are well-placed to navigate inflationary pressures. Rents typically rise with inflation, and the value of the underlying assets, such as apartments and buildings, also appreciates. This combination effectively enhances the investor’s financial portfolio.
Riding the Wave of Changing Lifestyles
The allure of a single-family home is losing its luster for a segment of the population increasingly drawn to the convenience and cost-sharing ethos of multifamily living. Changing demographic landscapes, lifestyle priorities, and an evolving workforce mean opportunities abound in this sector.
Millennials and Gen Z, in particular, are reshaping the real estate landscape. Their preference for urban living and the flexible demands of the modern workplace have turbocharged the multifamily market, and this trend shows no sign of abating.
Capitalize Now to Secure Your Future
Investing in multifamily real estate is not just about securing a property; it’s about securing your financial future. With debt leverage, tax benefits, and inflation-resistant income, the multifamily asset class is a testament to capital preservation and growth.
In conclusion, multifamily real estate should be on your radar for those looking to build a diverse and resilient investment portfolio. The nuances of 2024 present a unique confluence of factors that make this sector particularly attractive for immediate investment.
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We’ve all seen the videos on social media. A landlord or developer shows up to their vacant investment property to find someone has moved in and is claiming they have the right to be there.
Last week we discussed what squatting and adverse possession are and how it can affect your rental property.
This week we are talking about what to do if a squatter moves into your rental and how to protect yourself from it even happening in the first place.
Worried this might happen to you? Give this episode a listen to see how you can reduce that risk!
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Written by Emily Koelsch
With changing economic and market conditions, some Landlords are deciding to sell their rental property with Tenants in place. There are various reasons to do this – for example, wanting to take advantage of strong markets, needing cash for other opportunities, or no longer wanting to be a Landlord.
There are some distinct advantages and disadvantages to selling a property with Tenants in place. If you decide to buy or sell a property with Tenants, you must know and respect your Tenants’ rights.
To help you do that, here’s an overview of those Tenant rights and tips for making the process go smoothly.
Notice Requirements When Selling a Property With Tenants in Place
Tenants have a right to receive an official Notice of Sale of Property. This Notice should be detailed and include specifics about when you’re putting the property on the market, the notice Tenants will receive before showings, and any other Tenant rights or responsibilities.
When drafting this Notice, look at your Lease Agreement and state laws. Some states have specific timelines for when Landlords must give notice. Additionally, good Lease Agreements include language about Notice of Sale and Notice of Showings.
Here are some tips for drafting this Notice:
- Review your Lease and make sure you comply with all terms;
- Review state and local laws to ensure compliance with all requirements;
- Include as much detail as possible;
- Tell Tenants how much Notice you must give before showings;
- Discuss the Tenants’ rights and responsibilities;
- Encourage Tenants to contact you with any questions or concerns.
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The Lease Agreement Is Enforced Even if Ownership Changes
One of the most essential things for Landlords and Tenants to understand is that a fixed-term Lease Agreement remains in effect even if ownership changes. The Lease isn’t tied to the Landlord; instead, it remains with the property and is in full effect until the end of the Lease period.
Here are some Lease-related tips when selling a property.
- Tenants are understandably anxious when they hear that their home is being sold. To ease their concerns, let them know that their Lease terms won’t change.
- A strong Lease Agreement can make your home more attractive to investors. Investors are bound by the terms of the Lease. They’ll be more comfortable with a thorough, state-specific Lease Agreement.
- To protect your Tenant, put everything in writing. For example, if the Lease doesn’t include a Pet Addendum or address pets, the new owner could tell your Tenants their pets are not allowed. Add any needed Addendums to your Lease before selling the property.
- At the end of the Lease term, Tenants are entitled to their security deposit. At the time of the sale, Landlords should transfer the deposit and any accrued interest to the new owner.
Effectively Marketing & Selling a Property With Tenants in Place
Even with proper Notice and a good Lease, it can be tricky to sell an occupied rental property. The process is stressful for Tenants and presents uncertainty for buyers. Thankfully, there are some ways to make the process go smoothly.
With that in mind, here are some tips to help you market and sell an occupied rental.
- Make sure Tenants are current on rent. If Tenants are behind, it makes your property less attractive to investors.
- Offer incentives to encourage Tenants to be cooperative during the selling process. Tenants can help by keeping the property clean, leaving during showings, and staying current on rent. To encourage cooperation, consider offering incentives like gift cards to local restaurants, a night at a hotel during an open house, or a rent discount while the house is on the market.
- Communicate well with Tenants throughout the entire process. Good communication includes coordinating showings around their schedule. Ask your Tenants when it’s convenient to show the property and, whenever possible, schedule showings during these times.
- Even if you don’t plan to sell a property, your Lease should always include language about a Landlord’s right to sell a property.
- Tenants are not required to clean or prepare the property for showings. To ensure it’s in good condition, offer to have it professionally cleaned.
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Good Tenants and a strong Lease Agreement are key factors for selling your property with Tenants in place. Buyers need to feel comfortable that they won’t have Tenant headaches. When there’s a thorough Lease and the property’s in good condition, the buyer has peace of mind that they’re inheriting quality Tenants.
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Source: Rental Housing Journal
Small move sizes by renters are predicted to grow in 2024 mostly because the ratio of rental moves and homeowner moves changed.
A full 50% of moves in 2024 will be renters with small move sizes, predicts one report based on moving company request trends.
Looking ahead to the warm weather moving season’s busiest months, the report notes that “people who own homes aren’t moving. Only renters are moving. And renters have a lot less stuff.
So, in 2023, we saw the average move size drop by about 30%. Mostly because the ratio of rental moves and homeowner moves changed. So, we’ll continue to see rental moves make up a big portion of 2024 moves.”
The report‘s predictions are based on user behavior — when movers submit requests, interest in those destinations and sizes of moves are logged. If the trend continues, rentals will reign, and small-size movers will take a larger and larger percentage of overall moves this year.
Why? And what does that mean? We’ll dig into some factors we think are behind the trend.
What are the Reasons Behind the Small-Move Rental Boom?
1. It’s Easier to Move a Rental Household
Typically, renters have fewer items to move than owners. That makes them more likely to relocate than owners, who might have decades’ worth of possessions tucked into garages, basements, and attics. It makes renters more mobile than owners.
Owners have social and psychological reasons to stay put, too. They may be ensconced in their communities, from schools to places of worship and city councils.
In fact, one study showed renters were three times more likely than owners to have moved recently.
But that doesn’t explain why this year’s renters are taking an even larger share of the pie. Or does it?
2. The Current Job Market Favors Relocators
When it’s easier to move without having to find a new job, more and more renters who are thinking about relocation are likely to jump in.
Long-distance moves continued to accelerate through 2023 as jobseekers looked outside their own cities in search of affordable housing and better quality of life. The remote-work renaissance during pandemic shut-downs made that possible, and it shows no signs of slowing years after lockdowns.
Some even say that return-to-office “died” in 2023, so workers may be feeling bolder that their jobs will accommodate new moves.
Because renters can pick up and move more easily with smaller move sizes, more small-move relocators get in on the trend.
3. Interest Rates Are High
At the same time, large move sizes (belonging to more homeowner moves) are stagnating.
While current interest rates can’t compete with their high 1990s counterparts, they’re still high compared to anything prospective homeowners have seen in the last two decades. That’s put a damper on home buying and it has encouraged owners who are moving to consider renting in their new location until rates come down.
With some speculation that this could happen by the end of the year, homeowners are more likely to put off moving for one more year, while renters face no such obstacles. They can move now, and many are.
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4. Pricing Pressures
Recent inflation on everything from food to consumer goods, coupled with an ongoing housing shortage that’s been driving prices upward, has put pressure on renters to move. According to one survey, 56% of renters said they felt pressure to move in order to seek relief from increasing rents.
And, as prices rise, renters who have a mobility advantage can look outside their home cities for a discount. With remote jobs, they’re even more likely to do so.
The result? Renters are less likely than ever before to ask themselves if lower-rent regions are “worth it.” Of course they are! They can increasingly keep their jobs anywhere in the country while saving more — and maybe even increasing the likelihood that they become homeowners in the future.
In a world where renters can work just as much, but save more and live larger in a potentially safer, cleaner location closer to nature, why wouldn’t they?
What Does the Rental Move Boom Mean for Renters?
More moves, more renters, and smaller move sizes?
Is that positive or negative? As housing transactions fall, demand for rental units necessarily rises, benefitting landlords. That small-size rental moves are grabbing a bigger share of the moving pie also predicts strong demand for rental properties, rising rates and competition for units.
However, there are benefits for renters that come with the trend toward smaller move sizes:
- Focus on tenant satisfaction: As landlords try to keep down the high turnover that comes from more moves, they’re more likely to seek out stable tenants who they feel will stay long-term. That means more focus on tenant satisfaction and retention, with more responsive property management, on-point maintenance, and timely communication.
- Greater flexibility: More small moves and higher mobility may pressure unit owners to offer more flexible lease terms, as renters increasingly value the freedom to move. Landlords can attract a broader pool of tenants when they offer more flexibility in housing terms.
- Amenities rule: Tenants will be increasingly able to seek out properties near transportation or with lifestyle amenities from fishing ponds to crystal lagoons, car-free thoroughfares, and more. After all, they’re often moving to increase their quality of life. Appealing to these renters may mean the market increasingly bends toward differentiating their properties and making them lifestyle destinations.
- Moving becomes more about location, location, location: Renters may find it more difficult to move to neighborhoods in high demand for their high quality-of-life amenities, access to culture, and accessible transportation. These hot spots should see increasing applications for new moves.
Small Moves Will Reign in 2024
While some landlords fear a rental market crash in 2024, the reality is far more nuanced. In fact, demand for rental housing stands to rise, with prices predicted to increase 1.5% in 2024. New supply is actually putting the brakes on the rental market, not a lack of movers.
Landlords can take heart from moveBuddha’s data that shows an increase in the market share of small-size moves, as they predict high move intent from renters throughout the 2024 moving season. But renters have plenty to celebrate, too.
The biggest takeaway?
The era of moving to “Zoom towns” is not over, as more and more renters recognize that it’s not the time to buy, and that they won’t lose their existing jobs if they opt for new rental digs. Renters who can harness the demand for these moves stand to gain in 2024.
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Article provided by Fair Housing Institute
It’s simply a part of any property; your residents aren’t always going to agree. This makes conflict inevitable, but the key turning point is when it turns into bullying and harassment. To be clear, the Fair Housing Act states that resident bullying and harassment cannot be tolerated. Are you sure that your property, as a whole, has the best practices in place when it comes to resident bullying and harassment? Let’s go over four key points that occur during this situation and highlight best practices for each.
Best Practice: Proper Training for Staff
Your staff members typically have the most contact with your residents. They’re the listening ear and first point of contact for many issues, including incidents of harassment and bullying. So, what if your staff member witnesses a case of resident bullying?
First and foremost, any member of staff who is not involved with management should not get involved in the situation in any way. This is because not all staff members will have the training to discern a personality conflict from a conflict based on a protected category/class.
The training you should invest in for all staff members is twofold: incident reaction and documentation. Training all staff members to stay a witness to an incident involving resident bullying and harassment is your first step. The next steps are to ensure everyone understands how to document the witnessed occurrence properly. Any little detail missed can impact management’s investigation of the incident.
Best Practice: Incident Documentation
So, a staff member has witnessed and documented a conflict between two residents that they perceived to be bullying and/or harassment. What are management’s next steps? Along the same lines as staff members training, ensure every step you take is documented well when following up on the reported incident.
Your first important step is to establish that there is bullying and/or harassment taking place between the residents. If there is enough evidence found to support this claim, you cannot hesitate to launch an investigation. Why is this?
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- Operating agreement for member-managed LLC
- Operating agreement for manager-managed LLC
- LLC reservation of name letter, and
- Minutes of meeting form.
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Best Practice: No Investigation Hesitation
The most important answer to the above question is quite simple: investigation hesitation can lead to a violation of the Fair Housing Act. It is illegal for harassment to persist with no action on behalf of the housing provider.
As a follow-up answer, the housing provider will almost always be the focus of the legal case if a court investigation is launched. This is based on the fact that the housing provider is operating as an asset of a property management company, therefore, they have more money to pay in a settlement, as opposed to an individual who was the cause of the bullying. In summary, if you want to avoid a pricey settlement on top of a violation fine, it’s best that you launch an investigation as soon as it has been proven harassment is taking place.
Best Practice: Zero Tolerance Policy
Once you have your documentation in place, from the incident report to the investigation, it is up to management to issue consequential action. Bullying and harassment are not only against the Fair Housing Act but also a violation of the resident’s lease.
So, depending on the severity of the situation, a lease violation or termination can be issued. A zero-tolerance for bullying and harassment policy can also be installed as part of your property for further proof of a decision made by management.
In conclusion, situations of harassment and bullying will occur on any property. And they’re tough incidents to deal with. In any case, remember the discussed best practices: ensure your staff is properly trained, incident documentation is as thorough as possible, don’t give in to investigation hesitation, and consider a zero-tolerance policy.
Above all else, remember the Fair Housing Act is against bullying and harassment of any kind. So, ensure you’re following through on your responsibility to uphold and abide by its laws.
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Listen On:
This is a hot topic in many areas right now!
From property lot lines to someone actually gaining entry to your property and living there, many real estate investors have to be very careful about what you buy, how you manage the land and the structure, and protecting your vacant property.
In this episode we are talking about the law behind squatting, also known as adverse possession. We will discuss the history behind it, where it has gone wrong, and what some states are now rushing to do and correct the problem.
This is a two-part podcast episode. This week is all about what it is and how it can affect your rental property. Next week we will discuss what to do if a squatter moves into your rental and how to protect yourself from it even happening in the first place.
LINKS
👉 Episode 68: An Interview with Self Managing Landlord, Dan Borrero
👉 NOLO: State by State Rules on Adverse Possession
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Written by Emily Koelsch
Investing Out of State
Out-of-state investing is an increasingly popular strategy for real estate investors. Property values vary significantly from one state to the next. For investors who live in expensive markets, investing out of state often means a lower entry price and an increased rate of return.
In addition, there are lots of tools available to make it easier to manage rental properties from out of state. This means that investors can still self-manage their properties to further improve returns.
The combination of these factors has made out-of-state investing an increasingly popular choice. That said, it presents some unique risks and challenges for investors. To help you decide if this strategy is right for you, here’s a look at some things you need to consider before investing in out-of-state real estate.
Rental Market Research & Property Analysis
Research is one of the keys to successfully investing in new markets. Before picking a location, you want to do plenty of research to ensure it’s a good option for the short- and long-term. Look at a variety of different data points, including:
- Housing prices
- Recent housing appreciation rates
- Economic growth
- Employment rates
- Rental demand
Once you’ve found a market that you’re comfortable with, you’ll also want to do a full financial analysis of any properties you’re considering. This should include:
- Target purchase price based on comparable sales
- Estimated rent amounts
- Taxes
- Maintenance expenses
- Overall operating expenses
This analysis will give you an estimate of your monthly cash flow and your return on your investment. Doing this analysis is important in all markets, but it’s particularly important when entering a new area or market.
Create a Network & Local Team
Once you’ve found a market and property you like, the next thing to do is build a local network and team. This should include:
- A real estate agent with expertise in the area and investment properties
- A contractor and/or handyman that can help with big and small projects
- An HVAC professional
- A plumber
This is the core team you need to purchase and manage a rental property remotely. You can also benefit by having a network of local real estate investors or by connecting with neighbors who can help keep an eye on your property.
Become Familiar With Local Landlord-Tenant Laws
Each state has its own Landlord and Tenant laws. These laws can impact how you manage your property. For example, state laws control:
- What has to be included in a Lease Agreement
- The collection and handling of security deposits
- Late fees
- Notice requirements for entering for a non-emergency
- Lease renewal notice requirements
- Landlord and Tenant responsibilities
Before entering into a Lease Agreement, Landlords need to be familiar with the laws of the state where their property is located to ensure that they comply with all applicable laws.
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Consult a Tax Professional
Out-of-state rental properties can make taxes more complicated for investors. Because you’ll be earning income in a new state, it can impact how you run your business and file taxes. Before investing in a new state, talk with your CPA or tax professional about the tax implications of expanding your portfolio in a new state.
Tips for Getting Started as an Out-of-State Investor
Despite the unique challenges that can come from investing out of state, many investors decide it’s the right choice for them. If you decide to move forward with this strategy, here are some tips to help you get started:
- Consider locations you’re somewhat familiar with – for example, where you went to college, have family members, or used to live. Some knowledge of the area will give you a great head start. Plus, it usually means you already have some contacts to help start your local network.
- Never buy sight unseen. Pictures, videos, and virtual tours are increasingly popular in the real estate industry. While these are helpful tools, they’re not a substitute for seeing the property yourself. Before buying a rental property, always look at it in person. This will ensure you’re making an informed decision about the property and the location.
- Schedule regular in-person inspections. While you can do most of your property management digitally, you still want to periodically inspect the rental property. Plan for this from the outset and prioritize annual property inspections.
- Take advantage of tools that make it easy to be a remote or digital Landlord. For example, Tenant Screening Services, online Lease creation and electronic signing, online rent collection, and a digital system for Tenant maintenance requests.
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In a landmark settlement, a property management company and its landlord have agreed to pay a significant sum following allegations of violating the Servicemembers Civil Relief Act (SCRA).
The U.S. Attorney’s Office, Eastern District of Virginia, recently announced the settlement involving a claim between a servicemember homeowner and their landlord and property management company, McGowan Realty LLC, operating as RedSail Property Management. The complaint alleged that the defendants violated the SCRA by imposing early lease termination charges and additional rent on a servicemember.
An overview of the Servicemembers Civil Relief Act (SCRA)
The SCRA is a federal law enacted to provide legal protections and relief to active-duty servicemembers of the United States Armed Forces. Originally known as the Soldiers’ and Sailors’ Civil Relief Act (SSCRA) when it was first passed in 1940, it has undergone amendments and updates over the years.
The SCRA aims to ease the financial and legal burdens placed on servicemembers during active duty by postponing or suspending certain civil obligations. For example, the law allows servicemembers to request a postponement of civil court proceedings, such as lawsuits, foreclosures, or bankruptcy proceedings if their military service materially affects their ability to participate. It also protects servicemembers’ property, such as vehicles, against repossession for nonpayment while they are on active duty.
This lawsuit involved a different provision of the SCRA, which allows servicemembers who receive permanent change of station orders or are deployed for at least 90 days to terminate their residential leases without penalty. Landlords are prohibited from imposing early termination fees or requiring payment of rent beyond the termination date specified in the SCRA.
Make your business an LLC
Structuring your business as an LLC can bring important advantages: It lets you limit your personal liability for business debts and simplify your taxes. Here, you’ll find the key legal forms you need to create a single-member or multi-member LLC in your state, including:
- LLC articles of organization
- operating agreement for member-managed LLC
- operating agreement for manager-managed LLC
- LLC reservation of name letter, and
- minutes of meeting form.
Form Your Own Limited Liability Company has easy-to-understand instructions, including how to create an operating agreement that covers how profits and losses are divided and major business decisions are made. You’ll also learn how to choose a unique LLC name that meets state legal requirements and how to take care of ongoing legal and tax paperwork.
The allegations of SCRA violations in this lawsuit
Here, the defendants refused to honor a servicemember’s lease termination after he received a permanent order to a new duty station 33.5 miles from his residence in Virginia Beach. The defendants argued they were covered by the Virginia Residential Landlord and Tenant Act. Unlike the SCRA, the Virginia law allows servicemembers to qualify for early lease termination only if they must relocate 35 or more miles from their current residence. Therefore, the defendants forced the sailor to pay $3,408.55 in early termination fees plus additional rent.
The Department of Justice argued that the SCRA offers “relief to servicemembers who would otherwise be forced to pay rent for housing they cannot occupy because they have been ordered to move to another location.” The federal law, they argued, trumped state law in this case because the SCRA has no distance limitation. Moreover, while the SCRA allows a landlord and tenant to waive the applicability of the rules, there was no such waiver in this case. A waiver must be executed in writing separate from the lease.
After spending 14 months and $50,000 in attorneys’ fees litigating the case, the defendants opted to settle. The consent decree requires the defendants to pay the servicemember $10,225.65, which includes the unlawful termination fees and additional rent plus two times the unlawful fees and additional rent assessed. The decree also orders the defendants to pay a $3,000 civil penalty to the U.S. Treasury. Moreover, the company must provide SCRA training for its employees and avoid imposing the 35-mile restriction on leases involving qualifying service members and their dependents.
What this lawsuit means for landlords
The resolution of this case sets a precedent for the protection of SCRA rights nationwide. All landlords should be aware of how the SCRA affects their relationship with tenants. In litigation failure to provide a servicemembers affidavit can derail proceedings, wasting the time, effort, and resources of the landlord. Even out of court, failure to abide by SCRA rules can be an expensive mistake.
Source: JD Supra by Ryan Kennedy
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