Why Rental Properties Are Still a Good Investment When Interest Rates Rise
Key Takeaways
- Strong Long-Term Investment: Rental properties can still deliver solid returns despite rising interest rates, driven by rent growth, property appreciation, and local demand.
- Strategic Management Matters: Maximizing ROI requires choosing the right location, maintaining the property, setting competitive rent, and minimizing vacancies.
- Professional Support Boosts Returns: Working with a full-service property management company helps landlords streamline operations, stay compliant, and achieve higher returns.
Investors may be hesitant to pursue rental properties in a rising interest rate environment, but it is still possible to achieve a strong return on investment.
Rental properties are inherently long-term investments. To accurately assess their potential, it is essential to consider factors beyond immediate cash flow.
Elements such as anticipated rent growth, inflation, property appreciation, and local rental demand can significantly influence overall ROI, particularly over the long term.
In this guide from Keller n’ Jadd Property Management, we will explore strategies for investing in rental properties and maximizing returns even when interest rates are high.
Key Factors That Influence Rental Property ROI
Here’s how you can expect the potential impact on the ROI.
- Cash Flow: This refers to the difference between the monthly rental income and the operational expenses. Your goal as a landlord would be to ensure you keep the operational expenses as minimal as possible for huge margins.
- Appreciation: This refers to the increase in the value of a property over time. According to NCHStats.com, US home values have increased by roughly 8-9% per year on average over the past five years.
- Inflation Hedge: A real estate property can also act as a hedge against inflation. This is because, as the rate of inflation grows, so do property values, and so does the rental amount. This ensures that a landlord is able to keep pace with the rise in inflation by earning higher rental incomes.
- Property Equity: This is another benefit of investing in real estate. Equity is simply the difference between a property’s current market value and the outstanding mortgage balance. You continuously build it each time you pay down the mortgage every month.
- Tax Benefits: Landlords can take advantage of numerous tax benefits, which can help bring down operational costs for maximum ROI. Common expenses that are deductible for landlords include mortgage interest, repairs, insurance, property taxes, and utilities.
All these combined can help you shave thousands of dollars off your tax bill every year. What’s more, you can also boost your ROI by keeping in mind the following tips.
5 Tips to Boost ROI Even When Interest Rates Rise
Even in a high-interest-rate environment, there are actionable strategies landlords can use to enhance their rental property returns.
1. Choose the Right Location
Location is key when it comes to landlording success. If you choose the right location, you can benefit from high occupancy rates, high rental rates, and quality tenants, among other things.
A good location is one with rising population rates, job opportunities, and rental demand. However, if you make the wrong decision, the repercussions can be dire to your bottom line.
Locations to avoid are those that feature high unemployment rates, lack job growth, have high vacancy rates, and have poor infrastructure.
2. Make the First Impression Count
First impressions can either make or break your real estate investment journey.
If your property comes off as neglected and rundown, prospective tenants will avoid it at all costs.
However, if it’s in great shape, you may be able to
attract and retain quality tenants. Luckily, boosting a property’s curb appeal doesn’t typically cost an arm and a leg.
You can make a good first impression simply by doing the following.
- Giving the property a thorough cleaning
- Fixing broken stuff
- Installing outdoor lighting
- Mowing the lawn
- Refreshing the walls with a fresh coat of paint
3. Charge More Rent
It may be possible that you are undercharging tenants. That’s why it’s important to conduct market research to ensure your rental price is on par with everyone else. Because, by undercharging tenants, you’ll be effectively leaving money on the table.
However, make sure not to get overexcited in this regard and overcharge tenants. The issue with overcharging tenants is that it can make your property less attractive in the eyes of prospective tenants. Consequently, you may experience high vacancy rates.
4. Keep Vacancy Rates Minimal
To enjoy maximum return on investment, you’ll want to ensure maximum occupancy rates.
To maintain high occupancy, consider the following:
- Re-up tenants on month-to-month tenancies to long-term leases
- Rent to quality tenants
- Charge tenants the right rent amount that is in line with the prevailing market rate
- Offering tenants the amenities they want
- Incentivize quality tenants to renew their leases for extended periods
- Treat all tenants fairly
5. Hire a Property Manager
While this comes at a cost, it can be the only thing you’d need to do to maximize your ROI. Property managers come with years of experience in the field and can help you handle whatever challenge comes your way.
A full-service property management company can help maximize ROI by:
- Rent to the right tenant after careful vetting
- Determine the right rental amount
- Handle repairs on time
- Engage in ongoing maintenance
- Inspect the property for damage from time to time
- Keep your property legally compliant
- And much, much more!
Bottom Line
Despite rising interest rates, rental properties can continue to deliver strong returns when you focus on long-term factors like cash flow, appreciation, and rental demand.
By choosing the right location, maintaining your property, setting competitive rent, minimizing vacancies, and leveraging a professional property manager, you can maximize your ROI.
Keller n’ Jadd Realty & Management has over 30 years of experience helping Las Vegas rental property owners navigate the market and achieve their investment goals. Partnering with a full-service property management team ensures your investment is protected and positioned for long-term success.
