Evaluating Rental Property Returns

Let me be clear: Your property management team is the linchpin that can either make or break a real estate investment. Brokers might dazzle you with their presentations, but how many of them stick around a decade later to check the accuracy of their projections? I'd venture to say, not many. That's why your property management team is paramount. But here's the catch: Most investors are clueless when it comes to choosing the right property manager or management team. Drawing from my early career experience in property and asset management, here's what I've got to say: 1. Seek a property management team dedicated solely to property management. There's a sea of brokerages out there with property management divisions, whose primary aim is just to break even or make a modest profit from property management. Their real hope? That they can win your leasing or sales business in the end. 2. Recruit a property management team that treats your property as if they own it. Some firms out there do the bare minimum for minimal pay. If you're hands-on, that might work. But if you want your property to appreciate in value, you need a team that's invested in its growth. The ideal scenario? Link their compensation to the property's success, not just occupancy rates. 3. Choose someone who knows the ins and outs of property management. In today's real estate market, struggling brokers often add property management to make a quick buck. They might not have a clue about effectively running a property. Just because they can lease it out doesn't mean they can manage it. Look for a firm with someone sporting years of experience, education, and credentials like the Certified Property Manager (CPM®) from @The Institute of Real Estate Management. Seek out certifications and designations that are grounded in real-world experience. 4. Opt for expertise in your property type. Different property types come with different needs and expectations. What flies in the industrial sector may not work in multifamily. If you want your property to be managed to its fullest potential, you need someone who's an expert in the nitty-gritty specifics. So, property managers out there, what's your take? Did I miss anything crucial?

Two recent reports highlight the growing risks climate poses to the aging U.S. housing stock. The NOAA’s National Centers for Environmental Information 2023 Billion-Dollar Disaster report showed that the count of billion-dollar climate disasters in the U.S. set a record last year at 28, eclipsing the previous record of 22 set in 2020. Meanwhile, the Joint Center for Housing Studies’ (JCHS) American Rental Housing 2024 report found that 41%, or 18.2 million rental units, were in high-risk areas for environmental hazards. This percentage was even higher for single-family rentals, at 45%. The JCHS report also emphasizes the 44-year-old median age of U.S. rental housing and the growing need for capital investment in the nation’s housing stock. Quoting a report from the Federal Reserve Bank of Philadelphia, the JCHS noted that $51.5 billion (as of 2022) was needed to address physical deficiencies in the existing renter-occupied housing stock. Another $97.9 billion was needed for the owner-occupied housing stock. Climate risks are manifesting themselves through physical damage to homes, reduced health and well-being of residents, significant maintenance and capital expenditures, and high and rising utility and insurance costs. These risks are heightened in older homes with deferred maintenance and outdated building systems. Prudent portfolio construction and risk management will increasingly require investors to be thoughtful about locational risks related to climate and the resiliency of the assets they choose to acquire. But it also remains true that Americans continue to migrate to regions where climate risks exist and economic activity is conducive to rising rents and home values. Further, while older homes may require improvements to ensure their resiliency and increase their efficiency, these homes are often in desirable, well-established locations that justify capital expenditures. Is climate a material consideration in your real estate investment strategy and asset selection?

🕰️ It’s time to evaluate the Long-Term Debt Cycle and Its Impact on CRE (Ray Dalio) Dalio believes that we are currently at the brink of a period of "Great Disorder" within the long-term debt cycle. He suggests that we are entering the late stage of the cycle, where economic, political, and social tensions are escalating due to high levels of debt, economic inequality, and geopolitical conflicts. According to Dalio, these conditions are reminiscent of past cycles that have led to significant disruptions and changes in economic and political systems. This stage is characterized by increasing instability, which could result in a major economic downturn or a shift in the global order. - - - For #CRE investors, this means that rising debt costs, economic instability, and changing asset values could be on the horizon. Understanding this cycle could be the key to navigating the coming challenges in the CRE market. Here’s why the long-term debt cycle matters now more than ever. 1️⃣ Rising Interest Rates (We’re through this phase, for now) As the debt cycle peaks, central banks may raise interest rates to combat inflation. • Higher rates increase the cost of debt for CRE investors. • Refinancing existing properties becomes more expensive. • New investments may yield lower returns due to higher borrowing costs. This will squeeze profit margins, making debt management crucial. 2️⃣ Economic Slowdowns A downturn in the cycle often leads to a broader economic slowdown. • Reduced business activity decreases demand for commercial spaces. • Vacancy rates rise, impacting rental income. • Investors may struggle to maintain cash flow. Understanding market timing can help mitigate these risks. 3️⃣ Declining Asset Valuations Economic instability can lead to falling property values. • Investor confidence may drop, reducing demand for CRE. • Credit availability could tighten, further depressing prices. • Properties may lose value, impacting your portfolio’s equity. The long-term debt cycle is a critical factor in CRE investing. Understanding where we are in the cycle can help you navigate upcoming challenges and seize opportunities. ❓How are you preparing your CRE strategy for the next phase of the debt cycle? #CommercialRealEstate #RealEstate #Investing

You don’t lose money in real estate because of bad markets. You lose money because of bad decisions. Most new investors don’t fail because of external factors. They fail because they make predictable mistakes—mistakes that experienced investors know to avoid. 1. Ignoring Cap Rates – Buying a property without understanding its true return. Solution: Always compare cap rates to market averages and your investment goals. 2. Underestimating Operating Expenses – Hidden costs like maintenance, vacancies, and management fees can kill profits. Solution: Budget at least 20-30% of gross income for expenses. 3. Overleveraging – Taking on too much debt with little room for market shifts. Solution: Stress-test your deal with higher interest rates and vacancy assumptions. 4. Skipping Due Diligence – Rushing into deals without inspecting financials, tenants, or property conditions. Solution: Verify everything—leases, expenses, and even zoning laws . 5. Misjudging Market Cycles – Buying at the peak or ignoring economic trends. Solution: Study local supply and demand, interest rates, and future development plans. 6. Emotional Decision-Making – Falling in love with a deal instead of letting numbers guide you. Solution: Stick to your investment criteria and let data drive your choices. 7. Not Having an Exit Strategy – Investing with no clear plan for resale, refinancing, or repositioning. Solution: Always have multiple exit strategies before signing the deal. The best investors don’t guess—they analyze, verify, and plan before they buy. What’s the biggest mistake you’ve made—or almost made—in real estate? 🔃If you found this post helpful, repost it with your network. #realestate #inspiration

Most investors think the only way to increase property value is by raising rents. But there’s a smarter — often overlooked — strategy: utility sub-metering. Here’s how it works: 📌 Instead of billing utilities as a flat fee or owner-paid expense, you install sub-meters for water, gas, or electric in each unit. 📌 Tenants pay for their own usage — and use less as a result. 📌 Your operating expenses drop significantly. 📌 The net operating income (NOI) rises — without touching rent. 📌 And that increase in NOI? It directly improves your asset’s valuation. Example: If sub-metering saves $25/unit/month in water expenses across 84 units, that’s $25,200/year. Cap that at a 5.5% rate, and you’ve just increased asset value by $458,000 — without a single rent increase. It’s the kind of move institutional investors love — and one we build into our approach when evaluating BTR and multifamily assets. At CPI Capital - Real Estate Private Equity, we focus on value creation that respects tenants and protects investor upside. #cpicapital #realestateinvesting #btrstrategy #valueadd #investsmart #multifamilyedge #wealthbuilding

One of 2025’s headline stories in the apartment industry is that resident retention at initial lease expiration is being pushed to all-time highs. All the key publicly traded rental housing REITs (real estate investment trusts) highlighted their low unit turnover levels in quarterly earnings calls that took place over the past few days.   Economic uncertainty is a factor that’s helping rental housing owners and operators hang onto their residents right now. When you’re unsure about the outlook of your financial situation, there’s a tendency to do nothing and simply freeze in place.   The big premium to buy versus rent housing is another tailwind for the apartment sector, as fewer households are leaving rentals to make housing purchases.   Also influencing the resident retention stats, property management pros have been paying lots of attention to this metric of late. Many have shifted the lease renewal process, including both communication with the renter and pricing the renewal lease, to a corporate function handled by specialists, taking the responsibilities off the plates of multi-tasking on-site personnel.   As renewal lease revenues become a bigger part of the total flow of dollars for rental housing operators, some markets are positioned to benefit more than others. Looking at renewal lease info from RealPage, Inc., metros where resident retention at lease expiration has been sky high over the past year include Northern New Jersey, Cleveland, Milwaukee and New York City. Renters in those locations have opted to stay in place 65% to 67% of the time. At the other end of the spectrum, just 48% to 50% of renters have renewed expiring leases in Austin, Denver, Salt Lake City, San Antonio and Phoenix.   Resident retention tends to be strongest in places with three characteristics. Renters are older, on average, with older people shifting household configuration less frequently than their younger counterparts. Job production is comparatively moderate, lessening the likelihood of a move tied to employment change. And, construction is limited, giving renters fewer choices when selecting a place to live.   #LeaseLock #DataDriven #apartments #rentals

When it comes to analyzing real estate investments, operators often focus on metrics like LTV or DSCR. However, there's another critical measure that lenders pay close attention to: Debt Yield. While DSCR assesses the property's ability to meet payments currently, Debt Yield evaluates the loan's safety for the future. The calculation is straightforward: Divide the Net Operating Income (NOI) by the Loan Amount. For instance, a $240,000 NOI on a $2.4 million loan results in a 10% debt yield. Different types of lenders have varying comfort levels with debt yield: - Banks typically seek 10% or higher - Agencies are content with 8-9% - Bridge or higher-risk lenders might accept 7% but charge higher rates to offset the risk The significance lies in how Debt Yield factors out variables like interest-only structures or projected rent increases, providing a clear picture of the cushion between NOI and the debt. During market fluctuations, this metric becomes even more crucial. What might suffice at 8% in a robust market could require 9-10% for refinancing in a tougher environment. For operators, the key points to remember are: - Understand your current stabilized debt yield - Stress-test it for potential decreases in NOI or higher cap rates - While DSCR may appear favorable, it's the debt yield that truly reassures lenders when market conditions change.

It’s tax planning season, and earlier this year I spent time with some of the top real estate tax specialists learning how investors can optimize returns by saving on taxes. I hadn’t realized how specialized accounting is - much like medicine. Just as doctors have specialties like cardiology or dermatology, accountants often focus on specific areas too. But unlike doctors, they don’t have ‘names’ for their specialties so it wasn’t obvious to me at first. I assumed accountants had universal knowledge of the tax code. That assumption led to a tax ‘shock’ in 2023, and I decided it was time to seek out real estate tax specialists for advice. The result? An eBook featuring insights from the experts I interviewed where you’ll learn powerful ways to reduce taxes and boost earnings. While it’s not tax advice, the information is detailed, practical, and actionable. I’ve also included links to each contributor so you can connect with them directly. Here's a quick summary of the chapters: 1. Cost Segregation: Accelerating Depreciation Learn how to identify and reclassify property components to boost cash flow. (Contributor: Yonah Weiss) 2. Private Foundations and Tax Planning Explore how private foundations can offer tax advantages and support philanthropy. (Contributor: Mark Swedberg) 3. Real Estate Professional Status (REPS) Discover how meeting IRS participation thresholds can unlock unique tax benefits. (Contributor: Brandon Hall) 4. Using the Short-Term Rental Loophole Leverage passive losses from short-term rentals to offset active income. (Contributor: Tom Castelli) 5. 1031 Exchanges to Defer Capital Gains Simplify how to defer taxes when reinvesting property proceeds. (Contributor: Amanda Han and Matt McFarland) 6. Opportunity Zones for Tax Incentives Invest in underserved areas while reducing capital gains tax. (Contributor: Mike McVickar) This eBook offers clear, actionable insights, crafted by experts, to help investors like you end the year with smarter strategies. No cost, no strings, just helpful guidance (and intros to the pros) to make the most of your real estate portfolio. Comment ‘Tax Book’ and I’ll DM you a link to get your copy. I hope you find this as useful as I have as you plan for the New Year!

I've underwritten over a thousand real estate deals over my career, here are the 2 biggest mistakes I see passive investors make when evaluating multifamily investments: #1 They fully trust sponsor numbers #2 They focus on returns without considering the risks Until they realize the deal isn't performing as promised and they get a capital call. Here's how to analyze properties like an experienced investor: 𝗦𝘁𝗲𝗽 𝟭: 𝗟𝗼𝗼𝗸 𝗮𝘁 𝘁𝗵𝗲 𝗜𝗥𝗥 IRR is your most important return metric. It factors in the time value of money. If sponsors only show average annual rate of return ("AAR") instead of IRR, that's a red flag. Always ask for it. Value-add deals typically present 15%-17% IRR. ___ 𝗦𝘁𝗲𝗽 𝟮: 𝗣𝗮𝘆 𝗮𝘁𝘁𝗲𝗻𝘁𝗶𝗼𝗻 𝘁𝗼 𝗬𝗲𝗮𝗿 𝟭 𝗚𝗣𝗥 This single factor impacts IRR more than anything else. Some deals assume 100% of units hit post-renovation rents on day one. Completely unrealistic. Red flag: If sponsors assume >3% rent growth in year one based on recent growth numbers, they're being aggressive. __ 𝗦𝘁𝗲𝗽 𝟯: 𝗖𝗵𝗲𝗰𝗸 𝘁𝗵𝗲 𝗘𝘅𝗶𝘁 𝗖𝗮𝗽 𝗥𝗮𝘁𝗲 This determines your resale value and is the #2 factor impacting IRR the most. Many deals assume cap rates compress by 50+ basis points after 5 years. That's aggressive. Compare their assumptions to long-term market trends and historical data. __ 𝗦𝘁𝗲𝗽 𝟰: 𝗦𝘁𝗿𝗲𝘀𝘀 𝗧𝗲𝘀𝘁 𝗥𝗲𝗻𝘁 𝗣𝗿𝗼𝗷𝗲𝗰𝘁𝗶𝗼𝗻𝘀 Every deal assumes rent increases after renovations. But can people actually afford them? Compare proforma monthly rents to 30% of monthly median household income. If higher, leasing will be difficult. Also check: Population growth + job growth = future rent support. __ 𝗦𝘁𝗲𝗽 𝟱: 𝗘𝘃𝗮𝗹𝘂𝗮𝘁𝗲 𝗥𝗶𝘀𝗸 Don't chase high returns without understanding the risks. Check: - Market conditions (new supply, historical and current submarket occupancy, diversity of employers) - Type of debt - Exit assumptions - Reserves collected for unexpected expenses or drop in occupancy Ask sponsors for stress test scenarios. __ 𝗦𝘁𝗲𝗽 𝟲: 𝗞𝗻𝗼𝘄 𝗪𝗵𝗼'𝘀 𝗠𝗮𝗻𝗮𝗴𝗶𝗻𝗴 The property management company is as important as the deal itself. Ask: - How long have they been in business? - Do they have experience with this property type? A company that only manages single-family homes won't know how to run a 100-unit building. __ Did I miss anything? What would you add?

In property management, it’s often the little things that make the biggest difference. While rent prices, amenities, and location all play a role in a resident’s decision to stay or go, trust and experience are what truly drive retention. And resident retention is the ultimate cheat code for property performance. Focusing on retention and the factors that increase it delivers massive benefits—happier residents mean fewer negative interactions for your team; a stronger reputation attracts more prospects; and lower vacancy and turn costs supercharge NOI and increase property value, keeping owners and investors happy. Here are a few simple but high-impact ways to build stronger relationships with residents: ✅ Proactive Communication – Keep residents informed about upcoming maintenance, community updates, and any potential disruptions before they have to ask. Transparency builds trust. ✅ Small Gestures of Appreciation – A simple "welcome home" note for new move-ins, a quick check-in after a maintenance request, or a small holiday gift can go a long way in making residents feel valued. ✅ Follow-Through Matters – When a resident voices a concern or submits a request, responding quickly is key—but so is following through until the job is done right. The best operators don't just respond; they resolve. ✅ Being Visible & Accessible – The best property managers don’t just sit behind a desk. A quick wave or a friendly conversation while walking the community fosters a sense of connection and approachability. Resident retention doesn’t come from grand gestures—it comes from consistently doing the small things right. 💬 What’s one thing your team does to make residents feel valued? Drop it in the comments! #PropertyManagement #ResidentExperience #Multifamily #SFR #CustomerService #RealEstate #NOI #ResidentRetention