Helping Clients Build Portfolios with Long-Term Rental Properties

Long-term rental property has remained a stable source of investment returns, even in today’s highly competitive real estate environment. As interest rates drop however, these properties become even more attractive acquisitions for an investment portfolio. Improved cash flow only complements the many benefits of owning rental properties, contributing to their long-term wealth building effects. As a broker or lending partner, you play a key role in guiding your clients’ investment strategies as well as providing them with effective financing solutions. When it comes to rental properties, you can highlight their advantages in building a strong investment portfolio and helping clients achieve their financial goals.

Read on as we cover why long-term rental properties make for such great investments in today’s market environment, and how brokers can provide maximum value to their clients while growing their deal pipelines with this lucrative asset class.

Why Long-Term Rentals Are Ideal for Portfolio Growth

The benefits of long-term rental properties are twofold: lower interest rates mean margins on these properties are improving on top of the wealth building perks they already offer. These investments provide owners with a reliable source of cash flow, offering a great way to build equity and receive monthly income at the same time. Solid appreciation also means that property value growth can be leveraged with refinancing, leading to even better opportunities for portfolio expansion. Additionally, there are many tax benefits that come with owning rental property, from business deductions to depreciation which benefit long-term holders.

For investors who prefer a hands-off approach, rental properties can be managed passively by hiring a property manager. Of course, these services can be expensive. It’s important to compare the cost of them to a portfolio’s income to determine if it’s financially viable.

The Broker’s Role in Portfolio Building

Brokers aren’t just a source of financing for investors; they also help refine strategies and assist clients in achieving their long-term goals. Although financing is important, and you should offer a variety of loan options for rental investments, it’s not everything. For instance, you can utilize your market expertise to identify markets and properties with strong rental demand. You can also help clients identify comps to get a more accurate estimate of investment returns.

Not every investor is a great property manager either. Advise clients to implement strategies that help guarantee more stable rental income. That includes things like tenant screening, regular check-ins, and a thorough lease agreement that covers all their bases.

Steps to Help Clients Scale Their Portfolio

Let’s start by laying out the path many investors take when building a portfolio for long-term growth:

• Start with a Solid First Property: Encourage clients to conduct due diligence and identify profitable rental properties located in a high-demand market. This helps establish a foundation for future portfolio growth.

• Leverage Equity for Growth: Once enough equity has been built in a property, utilize a HELOC or cash-out refinance to obtain the capital needed to finance another acquisition. Again, do not neglect due diligence in this step.

• Create a Long-Term Acquisition Plan: Now that the investor has multiple cash flowing properties, it’s time to make long-term plans. Some may want to continue acquiring properties in the markets they’re familiar with; others may want to shift gears and expand quickly with a multifamily acquisition.

• Encourage Healthy Portfolio Management: Help your clients implement tools that facilitate portfolio management. Encourage them to develop systems that make it easy to ensure stable, continual growth. Some great examples include property management software and tools that benchmark a property’s financial performance which make it easy to compare with other properties.

Common Pitfalls and How to Avoid Them

Now let’s talk about some of the biggest risks investors run into with rental properties, and how you can help them avoid it. The most common of these is not conducting due diligence; ignoring market trends, demographics, and comparable properties is the easiest way to jump into an investment you have no right being involved in. This often leads to poor margins or being overleveraged and actually losing money. Be sure to highlight the importance of research and make accurate estimates for cash flow before your client moves forward with an acquisition.

The other common pitfall is poor management as a property owner. Failing to plan for vacancies or repairs means that they will only cause more problems when they inevitably occur. These issues can be mitigated by conducting regular maintenance, or in the case of tenants, having a good system for finding and screening qualified tenants. Drafting up a good lease agreement is the foundation for a healthy landlord-tenant relationship, and when combined with regular check-ins and taking good care of the property, it leads to happy tenants that stay on properties for longer and become a reliable source of rental income.

How Brokers Can Add Value Beyond the Transaction

The key to building a strong rental property deal pipeline is building lasting relationships with these clients. Many of them are repeat investors and will often return to you for refinancing and portfolio expansion opportunities. It’s all about providing value above and beyond financing. We mentioned how important due diligence is, and how you can use your expertise to ensure clients make smarter investment decisions. You can also provide them with resources to facilitate their projects, including market research tools, or connecting them with real estate professionals such as property managers, contractors, and tax professionals. Additionally, you can build an email list to keep in touch with past clients and stay top of mind by sending them regular market updates and deal finds.

RCN Capital

To help your clients maximize the returns on their next investment, partner with a lender that can provide you with the best leverages and rates. RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners across the nation. We provide short-term fix & flip financing, long-term rental financing, and new construction financing for real estate investors and lending partners. If you are looking to offer rental property financing to your clients, RCN Capital has competitive loan options and an award-winning broker referral program available to partners.