Analyzing Rental Properties | REI | Property Management | EP. 28

Hey, everybody, this is Chris Sonino here with Freedom Real Estate family of companies. This is episode 28 of Real Talk. That is Real Talk with real estate investors. Today I'm joined by Mariah, she's with Independence Property Management. Mariah, tell us a little bit what you do for us.

I am the assistant property manager for Independence Property Management. I am pretty much the direct contact for, you know, applicants coming in, residents, you know, that direct line of communication so we can get maintenance issues resolved. Leasing, leasing up the units that we do have available on our property listing.

Yeah, yeah. She's a relatively new person of the team. She's been here for what, three, three months or so? Going to four months.

Yep.

Yeah, she's done amazing work with us here at Independence Property Management and like I said, the Freedom Respect Real estate Group family of companies. Today we're talking about analyzing rental properties, something that you and I both have a lot of input on and more recently, input outside of ipm. For those of you that don't know, Independence Property Management manages assets all over Ohio along with the Freedom Real Estate Group. And we manage turnkey products that come through through our machine of properties. And you know, like I said, Mirai's played a pretty crucial role in tightening up our leasing and helping and assisting with analyzing rentals, which is arguably one of the most important parts of this process. So first, the big question is why do we analyze rental properties? Like, why do we set rents? And you would think that would be a pretty like, common answer, but I guess a lot of people don't understand how and why we go through that process and why it's so important. So the big thing is our owners, right? The people that we manage for, the people that buy our assets and entrust us with the management of their properties, a lot of their decision making comes from what is going to rent for, how is the property going to be maintained? So we analyze rent. We're looking at what is not only the fair market value, but what is sustainable. What can we put in there with the current economy and have a cash flowing, cash positive property. After all, I mean, having cash flow is the big goal here, right?

Absolutely.

So there's a lot of different things that go into that. Another reason why we do rent analysis is to be competitive. There are DIY owners that, you know, they're like, I just want to have somebody in there and they're willing to rent a two bedroom for 400 bucks. And that's great. I'm glad they have somebody in there. They're definitely Helping a family out. But the market rate is like, you know, 850, 900. So we have to be a little bit competitive. We have to be able to set rates that are sustainable. But also we're a business, so we have to compete. So there's a little bit of touch and go with that, a little bit of balance, yin and yang. So we'll kind of touch on that process and how we identify it a little bit. But one of the key things right off the gate when we're analyzing properties is you actually inspect them before we put them on the market and before we determine officially what our rent price is. Can you tell us a little bit about what you're looking for when you. What we call qa, so quality assurance, these properties before we get them listed?

Yeah. So when I go in the properties, I pretty much am, you know, walking in and I'm starting from left to right, top to bottom, looking and seeing if there's any issues that, you know, I personally wouldn't want if I live there in the house. So if the blinds need fixed, if the paint needs fixed, you know, the flooring, appliances, cabinetry, the bathrooms, you know, anything that I personally would want fixed as a resident myself, you know, I put that out there so we can make sure that that's taken care of before we actually list it on the market.

Yeah. So you're saying you look at the property from the eyes of the resident.

Absolutely.

Put you onto or off of a property based on what it looks like. Yeah. So that's a. That's a really. It's a really empathetic, Empathetic way to look at the inspection process. A lot of us, like even myself, including, I'm like, oh, here's a checklist, here's a spreadsheet, light switch, check, light bulb check. But you actually look at a functionality standpoint, like, would I be comfortable living here?

Right.

I think that's key. That's really important because we could rent thousand dollars properties all day long, but if it doesn't give you that thousand dollars feel, it's not going to be a sustainable relationship. And also makes your job a little bit harder because then it's just that much harder to maintain that relationship with the resident because we're overpricing. Right. So having that feeling definitely helps set rent in a way that is not only beneficial for our owners getting the cash on cash return, but also for our residents who have to ultimately live there. Their property has to perform for them too. I like to say that's something we Do a little bit different than some in the market. But the reality is, I think a lot of companies kind of want to gauge, is it going to be homey, is this feeling. That's why we do a lot of. There's a lot of staging and marketing, you know, bang, and all that stuff. Because, you know, you want to make it feel homey. You have to imagine yourself in the eyes of the resident. So, yeah, it's a big thing. And I know that's, like, still developing. I mean, yeah, we've always had some sort of inspection process, but you're building on that. And, you know, I really appreciate you because you take the extra time to like, oh, yes, it's standard, but, like, if we did this, it would make it just this much better. And we're on the fence sometimes about setting a rent ring. We're like, sometimes our president CEO will call me and be like, hey, I really need this rent here. What can you do to make it happen? And we're like, okay, update this or add a stove.

Yeah, add an appliance.

Something that maybe is a little bit outside of our standard, but just that little bit of extra. It doesn't cost a lot on the front end, but it brings a lot of value back. The other things that we do right when we're looking at. That's the step one, right? The inspection is step one. Because that tells us, okay, we already have a general idea of what rent would be in this area. We know what we could get in this area. And it kind of says, okay, this is what I'm thinking right in and amongst that. So while she's inspecting and we're running some numbers, we've already had a gauge of what the rent is going to be set at based on just the market. So we use tools. Now, I just want to say this. I'm not saying use this piece of software specifically. We do not have any sort of legal contract or monetary kickback from this organization, just disclosure there. But we use systems like Rent Ometer, which is pretty popular. BiggerPockets also has a little bit of a. They have a rent analysis tool that sometimes I'll kind of feed off of because a lot of our investors are going there to get their rent information. So if we go to where our investors are getting their data from, that also. And it's also not bad data. It's. It's. We'll talk about how it's slightly inflated right now on this market, but we go there and it'll give us like a general idea of where the ballpark or where the rent should be. From there, that's when we make tweaks about okay, well yeah, we might want to add appliance or one of these comparables has a pool. A pool, you know, which happened recently. I don't know why the rental had a pool, but that's okay. We can't compete with that. But you know, we look at different things, we analyze it very similar to how you would like the value of a home. I mean there's, there's other comparables, comparables in the in area that are same square footage, bedroom size, roughly give or take some square feet and half baths if needed. And what are they renting for? What we don't have control over is the empathetic side. Like whoever rented that property, did they just say ah, rents 1300 and then let us sell on the market until they got 1300 for it? Or did they rent it to a family member who rented it for 1300 or did it actually rent for 1300? Like some of those things that we don't have control over. So we like to quantify the data a little bit further here at IPM and the Freedom Real Estate Group because we manage over 500 doors here in house in this building. So with that we're able to look at our portfolio and say okay, hey, well the rent at this 3:2 in Monroe is you know, 1200 or $1300 or whatever. That's just an example. Is that real? Right? Is this just a fluke because there's five other single families and a half mile that also rented for this amount? Or is this data real? And we'll look at our portfolio. So it's very, very important that we set our rents where they need to be. Because it's actual. They're performing. That's what we do every day. Every day is we manage assets that are cash flowing. So go back to runtimeters a little bit. Rentometer gives like a range. I say hey, here's the average property. Here's like the upper 25 percentile of like the best of the best. Our turnkey product is usually in that best of the best category. There are a few that we sell turnkey that are more of a. We didn't do a full rehab on so they're not at our full standard. But we didn't, we did some work in there. So we're able to get above average. Worst case scenario, we'll bump to average. Now our average is usually 20 to 25% roughly below what we normally get for rents. I mentioned this because right now the market's inflated.

Oh yes.

Okay. So one of the, one of the things for our clients is there's a, in real estate investing, there's something called the 1% rule where essentially your rent should be within 1% of the ARV, which is the after re. After resale value. Okay. So if a home is valued at $130,000, it should get around $1300 in rent. It's not perfect because right now everybody can agree our real estate market's slightly inflated. The home values aren't as actual as what the list price are now. Obviously properties are moving, it's working, people are buying. Yeah, no complaints there. We're being in a real estate business. No complaints. However, when we're setting rents, we have to be realistic. The 1% rule does not always apply. We try. Okay, but one thing we don't like here at IPM is over promising and under delivering. So if we selling a product and we're like, hey, it's going to get X number of rents, I want it to get at least that. So for me we're a little bit more conservative. We try to set a little bit below. In your experience though, Mariah, have you had a lot of push back on our rent? Like our rent pricing?

Honestly, not too much. I think people know, like it's very scarce out there. You know, the market, how increased it is. You know, it's a, it's a seller's market. Just like it's. Yeah, it's, it's our, you know, our market to put it out there. But then when the inflation goes down, then we have to deal with the pricing there.

Right? Yeah. And so that's another reason why we're really conservative. Because. And I shouldn't say really conservative. We are conservative when it comes to the resident feeling in that we were in a. What's considered a post Covid economy, which is now a relatively new normal. We don't even know what that looks like fully because we haven't gone through enough of it to be able to realize it. But the market's going to shift eventually. I'm not a. I can't foretell that 100%. I can't tell you exactly what's going to do. But we know based on past historical data that it's going to ebb and flow. So when it does that, if we have a. I keep going back to $1300 because I was just looking at a bunch of rentals. But if we have a Property that rented, you know, last month for $1300. If the tenant stays for a year or two years, it may not re rent for 1300.

Right.

So there has to be some actuality to the data of, well, the expectation is we're renting over $1300. And then the conversation we have with our clients is, hey, it may be a little bit less than this two years down the road.

Right.

We're hoping that the market increases. I'd like to keep this tenant. Right. That's part of the reason why you work so well with the resident experience.

But I was about to say that's the biggest. You know, our goal is to keep that tenant as far as.

So building on that relationship will further help solidify our rent comps. And at that point, we're setting the market in our areas. That's another thing we do. We manage a lot of stuff in similar areas, blocks of each other, so we can kind of set the prices in those areas. Other than that, I mean, setting rents is interesting. It's a constantly moving target. We have to be very, very plugged into the market and how it's performing. A couple big takeaways just from this to kind of recap. Number one, setting rents is really important to our clients, really important to our. Our product. Right. That changes. We recently just kind of developed into the Cincinnati market and then north into the Springfield market. And those two markets are very, very different than Dayton. And even Dayton's very, very different than, like Middletown, which is only like 20 minutes up the road. And all of these markets are. I mean, they're not competing against each other necessarily, but our portfolio inside of those are competing. I cannot compare Middletown even to Cincinnati as far as what rents are. And knowing that, and for us, you and me, to be really plugged in to what's real is very important. And we continue to do that. I mean. I mean, we meet a lot about the listings that we're putting together. Are they. Is this realistic? Right. I think even last week, was it last week we rented a property on Windermere, or I think it was in kettering.

Oh, yeah. 1359.

Yeah, yeah. So that property, I mean, it was on the market for a while. Part of that was the rent. We just had to get the rent right where it needed to be. And we did our analysis, and the rent was set where it was, fair market value for what it was and the asset condition. And the previous renter, like, we didn't increase the rent a whole lot from the previous rent cycle, but it wasn't Wasn't moving the way we needed to. So. But as soon as we got that rent, that sweet spot, it rented immediately. And I think actually they're moving in this week or next, and the owner is really, really happy. But that's one of those situations where we kind of. We won and failed at the same time. Right. If we were a little bit more diligent than that, that rent would have been set properly in a way that wasn't as competitive. And then we've been a little bit more of a safety for the. We had lots of interest. Oh, yeah. And even some of the feedback was, hey, this rent is a little bit. So when we finally get it right, that's just one example. We win on rent more than in situations like that. But, you know, that was just. That was just a moment that we're just like, okay, right, this one's not moving. And the data saying, hey, should run for this, and it's not running for this. And we had to get a little creative. I think we put a couple, like, for rent signs out. Spruce. I think we cleaned the inside of that place twice, three times, something just to keep it fresh and neat and nice and it moves. I mean, all the things combined help with that.

Absolutely.

All right. Anything else that you want to kind of bring for this Rendle analysis talk? I think we kind of hit a lot of everything.

Yeah, I think we've covered it pretty much.

Yeah. All right, so for our viewers out there that are watching today, this has been fun. And this is available on all sorts of streaming platforms. Spotify, Apple podcasts, I think Google podcasts or something, as well as YouTube and our website. Catch us on our next episode, which I do not know what it is, but Caitlin will go on and just give us all the good details on that. But this has been awesome. Again, this is real talk with real estate investors, and we like to end by saying invest smart and live happy. Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate, financial, or business professional for individualized advice. Opinions and information on this show are not guaranteed. All investment strategies have the potential for profit or loss.