Long-term rentals are one of the most reliable investment strategies in today’s highly competitive market. These assets provide owners with reliable monthly income as well as other benefits like tax advantages and rapid equity growth. Brokers and lending partners play a key role in the investment process, not only providing clients with suitable financing options, but also assisting with property selection and optimizing their clients' strategies for maximum returns. Establishing strong relationships with these investors also benefits brokers, as it creates future opportunities for repeat business.
Read on as we cover the key aspects that make rental properties such a smart investment, and how brokers and lending partners can win by specializing in this asset class.
Long-term rental properties offer many wealth building benefits that strengthen their ROI in real estate portfolios. Of course, they provide consistent income, but they also have lower turnover and require less active management compared to other strategies like home flips or short-term rentals. Additionally, rental properties are a great way to build equity that is financed by monthly rental payments. This equity can then be used to finance new acquisitions and build a stronger cash flowing portfolio.
Long-term rentals appeal to investors looking for passive income since they can hire a property manager to take care of day-to-day operations, and this frees them to focus on other efforts like short-term projects or growing their portfolios.
There are several key factors that can affect the profitability of a rental investment, and the brokers that take time to educate their clients on these factors will help maximize their success. Location is one of the most crucial things to get right. It isn’t just about picking a growing city or neighborhood, but also taking a look at the area’s schools, amenities, and any future developments that might affect growth. Next is property size and type, where you will need to compare historical data to determine which properties produce the strongest ROI. A client’s experience with managing tenants can also affect profitability. Stress the importance of good communication, staying on top of maintenance, and creating a smart tenant screening process to reduce operational costs and loss of income.
Financing for rental properties does not have to be limited to just conventional loans. DSCR loans offered by private lenders can present many advantages over traditional mortgages. Approval for these loans is based on the debt-service coverage ratio (DSCR) of a property, or in other words, how much of its monthly expenses are covered by its income. This makes it easier for borrowers to qualify for approval even if they have less than perfect credit or receive income for non-W2 sources. DSCR loans are also much more flexible than conventional loans with more customizable terms, and they aren’t affected by the same limitations as FHA loans. Brokers can use DSCR loans to differentiate themselves in the marketplace, and enable their clients to secure financing when they otherwise wouldn’t be able to.
The great thing about operating a rental property is that owners have a lot of control over how profitable the investment will be. They can easily make upgrades that add value to the property, and in turn boost rental income. Brokers should highlight some of the most cost-effective upgrades that are worth investing in, such as lighting, paint, and exterior updates which can boost property value without too much effort.
Also crucial is setting rental pricing at a competitive rate, based on comps and local demands/trends. This can help reduce vacancies while ensuring that owners receive maximum monthly income. You should also suggest structuring long-term leases (2yrs or more) to reduce vacancy risk, and utilize rent management software for rent collection and lease renewals. Additionally, have the conversation about refinancing when the time is right to get your clients access to better terms or make use of the equity they have built as the property appreciates.
Brokers can provide more value to their clients by becoming strategic advisors that help these investors reach their goals. Lending partners should take time to educate clients on ROI drivers, and use data and rental analysis software to help guide the decision-making process. For example, utilize data aggregators like ATTOM data to obtain up to date statistics on specific markets, areas, and neighborhoods. You can then use this data to perform comp analysis and identify better deals when they appear. Maintaining communication and offering value beyond the loan insights helps build trust, and this leads to repeat business as you become the client’s go-to investment partner.
In order to maximize the returns on your clients’ investments, 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.