How to Price Your Rental in a Small, Secondary Market

The time-honored mantra of real estate – “location, location, location” – drives everything from a property’s purchase price to the rental rate. It can even dictate how much or little you should invest in improvements.

Real estate markets are classified by location type. There are primary, secondary, and tertiary markets, sometimes called Tier I, Tier I, and Tier III. The market classification for your rental property will be a crucial consideration as you set its rental rate.

An area’s population and state of real estate market development determine its classification as a primary, secondary, or tertiary market.

Primary Markets

Primary, Tier I markets are typically larger cities of 5 million people or more, with well-established rental markets. Examples include Chicago, New York City, Boston, San Francisco, Los Angeles, Washington, D.C., and Dallas-Fort Worth.

These large metro areas are usually more expensive than other metro areas – for both buyers and renters – due to consistent demand for housing.

Secondary Markets

Growing cities are considered secondary markets; their growth creates demand as new people move into the area, supporting new business development and job creation.

These Tier 2 locations demonstrate more real estate market flux, creating attractive opportunities for real estate investors.

Secondary markets tend to be a population of 2 to 5 million people. They are usually less expensive than primary markets but still in demand. Examples include Philadelphia, San Antonio, Phoenix, San Diego, and San Jose.

Tertiary Markets

Tertiary markets involve a lower population density of fewer than 2 million people. The population is spread out across a bigger geographic area.

There is typically less reliable job growth. In a strong economy, tertiary markets can provide attractive investment opportunities as property prices are typically lower.

These areas may be more expensive to develop as many are rural or outside of secondary market cities.

But can be prime markets for real estate investors as the properties cost less.

Whether you invest in a secondary market, tertiary, or primary market, it is essential to consider market-relevant data to price your rental correctly.

The key to pricing rentals in a primary vs. secondary market

The whole real estate cycle – from the purchase price to rental rate and eventual selling price relies on intelligence gleaned from current, comparable sales data for properties in the same price range.

When you review these comparables, you will get a good sense of amenities and the property improvements for other properties in the price range. As you determine your target rental rate, the purchase price is one factor but not the whole story.

You may be able to invest a small amount in fixing up the property, add or improve its amenities, and charge a higher rental rate than similar unimproved properties sold in the past year.

How you need to look at properties in secondary and primary markets differently.

Demand for rental property is always a local story. You can’t take an apartment in New York City and compare it to a similar apartment in Des Moines. Even if both cities are the largest in their respective states, large is relative –Des Moines has a population of 210,000, and New York City’s population is 8.175 million.

Even within Iowa and New York, you have the full range of markets to consider. So how do you determine the rent?

In real estate, comparing neighborhood properties wins out.

While you need to be aware of overall rates in the city where you plan to buy, your rental rate should be based on going rates in the immediate neighborhood. Each neighborhood will have a range that extends across unimproved and improved properties.

High-demand primary markets are top dogs because they have low turnover and can command higher rents. Secondary markets can present many growth opportunities. You can still improve a property in a secondary market to make it more attractive to tenants.

This will also allow you to raise rents accordingly. Tertiary markets also offer good opportunities, especially when the primary and secondary market values seem overblown.

Comparing apples to apples

In any market, you want to rely on current, accurate information to complete your analysis. Rentometer pulls rental rates from all online sources for current listings to provide you with accurate rental rates for any area. You can search within any state, city, or neighborhood to get the most up-to-date picture of rental rates.

Let’s compare rates for 2-bedroom, 1 1/2 bath rental units in Des Moines. The city’s average rent for this property type is $1,186 per month, but rates range from $943 to as high as $1,429. This range tells you that the right purchase price and a few property improvements could create a nice cash flow.

Comparing similar properties in a secondary market

Going a bit deeper, let’s compare three different neighborhoods in Des Moines: Downtown Des Moines, Bloomfield-Allen, and Merle Hay. Downtown has the highest average rents at $1,482 per month, while Bloomfield-Allen and Merle Hay show average rents of $890 and $891. Looking more closely at each area, you’ll find that Downtown has an entirely different culture and amenities from both the Merle Hay and Bloomfield-Allen neighborhoods. And while the two other neighborhoods are similarly priced, they have different amenities, culture, and crime levels.

It’s Time To Prepare Your Apartments For The Busy Leasing Season

Though every apartment community experiences its own unique seasonality, there are two points of the year that signal changes in leasing activity. There’s the slow season, which usually begins in the fall when the school year starts and the weather turns cold. Then there’s the busy season that begins when school’s out and the weather is nice.

We’re now only a few weeks away from when most communities will begin experiencing their busiest stretch of the year. They’ll have their highest demand—renters want to make their moves when it’s warmer—and their greatest turnover. It really is a make-or-break time for many properties because if they can’t generate enough leases to account for the number of residents moving out now, the task will become much harder when leasing activity slows.

To help, here are our recommendations to prepare your community for success over the next couple of months:

1. Check Your Lease Expirations

Reviewing your lease expirations is your first line of defense when trying to make your busy season more manageable. Why? If you know in advance that there will be a certain week or month ahead when a high concentration of leases will be expiring, you won’t be bombarded by suddenly having multiple units turnover at once. You can get ahead of it.

Plus, taking this step now gives you the opportunity to start thinking through your renewal strategy. Check out our blog post ‘4 Ways to Improve Your Apartment Community’s Retention Rate’—it has great ideas you could apply here to help you keep more leases.

2. Set Your Staffing

Take a look at your work schedule for the upcoming weeks. Will your best manager, or leasing agent, be going on a vacation or be away from the office? If so, get on that now. Being understaffed may affect your closing rates because your team’s ability to conduct in-person tours will be limited. Evaluate whether or not there’s an opportunity or need to add to your staff.

Don’t forget your maintenance team. You need to make sure they’re properly staffed and equipped to be able to handle their increased workload, too. When it’s your busy leasing season, your entire team needs to be hitting on all cylinders.

3. Make Changes to Your Digital Advertising Budget

The purpose of your digital ads is to drive more qualified traffic to your website, which begins the process of converting leads to leases. Think of using them in the same way as you’d use a water faucet. When you need traffic the most, just turn the faucet on.

We talk all the time about dynamic apartment marketing, and a lot of it is tied into how you utilize your digital ads. We believe that pairing a high budget, for times like the busy season when you’ll have more turnover, with a low budget, for when your occupancy is strong, is the best way to maximize your marketing dollars.

So, be ready to turn the faucet on and spend more on your digital ads for the next couple of months compared to other times of year. You will need to have enough ad dollars budgeted to run Defensive ads that defend your community’s identity, Remarketing campaigns on both Google and Facebook that keep your apartments top of mind, and perhaps some Offensive campaigns that allow you to compete against similar properties.

4. Review Your Rental Rates

An odd trend we see is some communities raising their rental rates on January 1st. Right now, at the onset of your busy leasing season, is actually the best time to be taking this measure.

You know you’re going to have more potential residents looking at you over the next few months compared to any other time throughout the year, because whenever you’re experiencing more turnover you’re also going to have more demand. It would make sense to raise your rates at a time when pricing isn’t weighed as much as availability.

We recommend lowering your rental rates about a month or so before the busy period ends. That way you have a better chance of filling up any units remaining in the final few weeks leading up to your slow leasing season, when it will become much harder to do so.

5. Prioritize Your Time

When you’re in the midst of your busy leasing season, you won’t have much time to focus on many parts of your job. For example, why would you be trying to do things like make design decisions when all you’re going to be concerned with in that moment is retaining current residents and attracting new ones?

If you have any pressing managerial decisions, like standard updates, try and complete those now. The goal here is to make sure you’re prioritizing all of your focus and energy for the busy leasing season, when time will be your most important asset.

Guide to Buying a Duplex: Pros & Cons of Duplex Ownership

Searching for a home, especially your first, is one of the most exciting pursuits of your life. You’ve got financial freedom and you’re ready to use it to get a place all your own! And while you might be eager to ditch the shared walls of an apartment complex, don’t rule out buying into the shared walls of a duplex. There are plenty of reasons why purchasing a duplex could be the right choice for you. Let’s take a look.

Duplexes are very popular in the U.S. The National Multifamily Housing Council claims that about 1 in 5 households currently live in a duplex. Although they may not have been on your radar while shopping for homes, owner-occupied duplexes can be a wise investment. Similar to a single family home, duplexes are essentially two homes that share a wall with another home.

How does a duplex work?

Each home in a duplex can be either independently owned or by one entity. These owner-occupied duplexes can be split if the owner wishes to sell one or both. But what makes them so attractive is that duplexes — when one side is rented out — can help to generate income and pay down half the mortgage at the same time.

Is a Duplex a Good Investment for First-Time Homeowners?

To many, the prospect of renting out one half of a duplex is considered a good option. As far as starter homes go, it can also be a sound financial decision, too. If you’re thinking about buying a duplex as a first-time home buyer, it’s important to weigh your options and your long-term goals before making the call.

Buying a duplex and renting half out to a tenant is a big responsibility. You’ll be legally responsible for keeping the unit in a habitable state. And if something should go wrong with the HVAC or the water heater, you’ll need to be able to react — both physically and financially — to make repairs and line up service personnel if you can’t. Another consideration when buying a duplex as a first home is to be sure you’ve got the financial reserves in place to pay for the rental’s mortgage in case the tenant doesn’t work out. You may have trouble replacing the tenant if they unexpectedly move out.

Owning a Duplex: Pros and Cons

Buying a duplex and living in one half while renting out the other seems like a smart idea — and it can be a very good investment! However, like all investments, there are always some negatives to take into account. Let’s explore the pros and cons of having an owner-occupied duplex and see if it’s the right fit for you.

Pros of owning a duplex

One of the biggest reasons most people consider buying a duplex when they’re searching for their first home is the investment opportunity. Check out why it’s a good financial move to invest and live in a duplex.

Income on your property. With a tenant contributing to half of your monthly mortgage, you’ll be poised to build savings.

Renting your duplex could help you during the loan process. When you plan on renting out one side of a duplex, you may be able to factor that into your income and qualify for a larger home loan. Talk to your mortgage officer for specific details.

Your tenants help pay your mortgage. When you’re living in one side of the duplex and renting out the other, you’re taking a big chunk out of your mortgage payment every month. When you compare your reduced mortgage payment to what you’d be paying if you purchased a single-family home, duplex living seems like a no-brainer.

Tax benefits. Not only do you get your standard deductions for being a homeowner, but you can also deduct the expenses you incur while renting and maintaining your rental unit. Selling an owner-occupied duplex may also give you some exclusions from capital gains taxes since it’s treated as two properties.

Talk to your tax professional for more specific advice, but since your duplex is producing income, it’s technically a business — and that means you’ll have some opportunities for tax benefits that you wouldn’t have if you’d picked a single-family home.

Beginning of a real estate portfolio. A duplex is a great stepping stone for anyone looking to invest in real estate. While you live in half, you can pay down your mortgage. Then, when you move out, you can rent out both sides — doubling your rental income.

Rent goes up. In general, rent goes up over time, but a fixed, 30-year mortgage stays the same. So while your mortgage payments don’t change, you can charge more for rent, adding to your income over the years.

Close to your tenants. There’s nothing like living next door to your tenants for property checks and maintenance issues.

Cons of owning a duplex

If the income portion of owning and renting a duplex sounds good to you — great! But don’t let that drive your entire decision. There are plenty of other work, social and risk factors to consider before you jump into the rental game. Check them out:

Twice the expenses. There are many financial benefits to a duplex but some of the expenses double — maintenance is one of the biggest considerations. Make sure you do the math at the outset to see how your finances line up.

Tenants have expectations. When your tenants are next door, they may expect you to deal with any issue they encounter immediately.

The landlord business. Once you rent out the other half, you become a landlord. Whether you love being a landlord or could leave it, it’s a business and needs special attention. Some mortgages require you live in your half for a year. Are you able to commit to staying put for a year? Or do you need more flexibility?

Location limitations. Your region may have zoning limits on where multiple family units can be located, which could restrict your location options.

Handling an empty unit. If the other side of your duplex doesn’t have a renter, you need to be prepared to advertise, show the unit, maintain it and handle months of no rent payments. Make sure you’re able to devote as much time as necessary to keep the unit in good shape and get it occupied.

Sharing walls. If you had your heart set on privacy that your old apartment couldn’t offer, you might not love the fact that your unit will share at least one wall, ceiling or floor with your neighbors. Be prepared for the occasional noises, especially if your tenant likes to entertain.

Respecting shared property. You’ll probably be sharing a driveway, a lawn or other parts of your property with your tenants. Making sure that you’re both respecting the shared property and cleaning up after yourselves is an important part of creating a healthy tenant and landlord relationship.

Renting Out An Owner-Occupied Duplex

Buying a duplex to live in can be appealing. And joining the ranks of the hundreds of thousands in duplex ownership is a great way to have a go at being a landlord for the first time. Unfortunately, buying and renting out a duplex isn’t a “set it and forget it” kind of investment. Before you ever show the unit to a prospective renter or hold an open house, you’ll need to brush up on some landlord basics. Here are some tips for learning to become a duplex landlord:

Research rent prices in your city, town or neighborhood. Setting a fair rental price is a major key to getting renters and keeping your other unit occupied. Look for similar units and compare and contrast the features, prices and location to yours.

Check out local rental and landlord laws. Depending on the location of your duplex, you’ll have different rules and regulations to abide by. Your tenant’s rights will depend on your location, too. These laws will cover things like security deposits, what you’re required to disclose about the unit to potential renters and more.

Prepare for repairs. If you don’t fancy yourself a handy person, ask around and search online for a reputable maintenance person in the area. You’ll be doing yourself and your tenants a favor by making sure you’ve got someone trustworthy to handle the unexpected maintenance issues that come with renting.

Don’t expect regular, on-time payments. It’s a tough pill to swallow, but as a landlord, you won’t always be paid promptly by your tenants. That’s why you should work to build a strong rapport with whomever is living on the other side of the duplex. Give your tenants the respect and honesty you’d expect to get, and you’ll be better off — both financially and personally — in the long run.

Learn about the required insurance

Get in touch with an American Family Insurance agent to get the coverage and peace of mind you deserve. Here are the policies you should consider:

Homeowners insurance. One last consideration when buying a duplex is your homeowners insurance. In most situations, if you have an owner occupied duplex, you can insure both sides through a traditional homeowner’s policy.

Business insurance. But, if you decide to move and rent both units you may need to look into business insurance. Your American Family Insurance agent will be happy to navigate these policy options with you so you can find the best option for your unique situation.

Landlord insurance. While you handle the day-to-day of managing your rental unit, you also want to make sure you’ve got landlord insurance that protects you from the surprises that come with the job.

The next steps to purchasing a duplex

Once you’ve made the decision to purchase a duplex, you’ll need to make preparations for the purchase in much the same way that you would if you were buying a home for the first time. As you’re considering how to buy a duplex, you’ll need to apply for a mortgage and figure out how much cash you can put towards a down payment.

Frequently Asked Questions

How can I buy a duplex with no money down?

You’ve got a few options if you’re looking to purchase a duplex with no money down. In addition to working out a lease-to-own arrangement with the current duplex owner, you could join forces with a financial investor who’s willing to partner with you on the deal.

How can I buy a duplex with bad credit?

In order to qualify for financing, you’ll need a minimum FICO credit score around 580 – 620. With that, you may qualify for an FHA loan to buy the duplex.

How Technology Is Disrupting The Apartment Rental Experience

Do you remember the last time you left home without your smartphone? Neither do I. We have integrated technology into almost every part of our daily lives. The average U.S. adult spends around three hours on their smartphones every day, from listening to music to scrolling through social media and streaming videos.

Today, technology is changing the way people engage with one of the oldest industries: real estate. It seems like just a few years ago that landlords faxed brokers black-and-white pictures of available apartments and agents would hang them on a bulletin board to display available properties.

Renting an apartment was a lengthy process that required in-person meetings, physically inspecting numerous properties and signing leases in an office space. Although the process might still feel lengthy in many cases, the accelerated rate at which technology has advanced has enabled us to streamline processes and make the apartment rental experience much faster and safer than it was only a few years back.

From Brick-And-Mortar To Smartphones

Residential real estate is reactionary. To remain competitive in a tough market, savvy brokerages have quickly adopted innovative online platforms that allow a faster flow of information and paperless transactions. While real estate agents continue to work from home, brokerages have shifted focus from their offices to their online presence.

Mergers and acquisitions have aided small and medium brokerages by eliminating fixed costs and sharing expenses. Having an online presence is now more critical than ever.

Numerous brokerages in the U.S are adopting video tours to easily share listings with their clients, social media and distinct advertising platforms. Video tours and virtual reality speed up the process by gathering feedback from potential clients. They also make the process safer by avoiding unnecessary physical inspections or gatherings that could lead to exposure to Covid-19.

Improving Potential Matches

The digitalization of the modern brokerage has allowed customers to use complex filters that improve their search for a new place to call home. A few years back, I had to select an apartment for rent from a printed list of properties attached to a wall. Today, a person can filter available properties online and may get as granular as looking for a two-bedroom rental apartment on the Upper East Side with a dishwasher and a walk-in closet that’s located in a pet-friendly building that has no elevator or doorman.

The ability to get very granular with an individual customer’s potential matches translates to a better quality of life and improved satisfaction during the apartment rental experience. It also shortens the time it takes them to find the perfect home.

Social Real Estate

From sharing video tours of available properties to signing legal documents online, technology has streamlined the process of buying and renting a home. People who fail to adopt new technologies will miss big opportunities.

Tech Companies Moving to Texas Fuel State’s Apartment Boom

In the last few months, several major California technology companies have announced plans to move to Texas—an exodus that will further fuel the Lone Star state’s ongoing  apartment construction boom. There are already currently 126,900 apartments under construction in Texas, making the state the national leader for new apartment construction, according to RENTCafe.

Nor is this influx likely to through the state’s supply-demand balance out of whack. “Texas holds the indisputable advantage of land use,” says Doug Ressler, manager of business intelligence at Yardi Matrix. “What’s great about it is that it enjoys an adequate availability to support population growth and migration, from dense cores to available exurban or suburban areas.”

Dallas is leading the state in new apartment construction with 49,000 new units under construction. In the last decade, more than 177,000 new units have been built in the market. Austin comes in second with 31,000 apartment units in the current construction pipeline and 22,600 of those units are located in Austin proper.

It isn’t surprising that these two markets, which account for more than half of the total apartment construction in the state, are also the primary locations for tech companies. Oracle and Tesla are both planning to move their California headquarters to Austin. Tesla alone says that it will create 5,000 new jobs and occupy 4 million to 5 million square feet of office space in the market. Oracle opened its Austin office campus in 2018, and the property supports 10,000 employees. Both companies have noted the business-friendly state and a large pool of tech workers as the reason for the move.

Hewlett Packard Enterprise Co. is also moving to the Lone Star state, but the firm is relocating to Houston, where it is building a new campus. Houston rivals Austin in terms of new apartment construction, with 28,600 new units in the pipeline, and more than 17,000 are landing in Houston proper. The city has been named the most popular market for corporate relocation and expansion.

San Antonio rounds out the list for apartment construction in the state with 10,900 new units in the pipeline.

Apartment construction has been robust in Texas for the last decade, with more than 500,000 new units in 2,000 new apartment buildings delivered in that time. Dallas has led the apartment construction activity with 177,400 new units added in the last 10 years, followed by Houston, which has seen 131,000 new apartment units come to market.

The apartment boom has also helped fuel growth in surrounding metros. Suburban Texas markets have grown in popularity among renters, many of which are offering many urban-style amenities found in the urban core, without the price tag and congestion. Texas has eight cities on RentCafe’s list of the top 20 suburbs in the US.

Developing A Business Strategic Plan – Winston Rowe and Associates

A strategic plan is a roadmap to grow your business.

 

Executive Summary

The Executive Summary is important since it will help other key constituents, such as employees, advisors, and investors, quickly understand and support your plan.

Elevator Pitch

An elevator pitch is a brief description of your business. Your elevator pitch is included in your strategic plan since it’s key to your business’ success, and often times should be updated annually.

Company Mission Statement

Your company mission statement explains what your business is trying to achieve.

Goals

They key is to first identify your 5 year or long-term goals. Next, identify your one-year goals; that is, what you must achieve in the next year for it to be successful and to put your company on the right trajectory to achieving your 5-year goals.

Key Performance Indicators (KPIs)

Great businesses understand their metrics and KPIs. By tracking your KPIs, you know exactly how your business is performing and can adjust as needed.

Target Customers

In this section of your strategic plan, you will identify the wants and needs of each of your target customer groups. This is important in focusing your marketing efforts and getting a higher return on investment on your advertising expenditures. This is because the more you can “speak” directly to your target customer wants and needs in your marketing, the better you will attract them.

Industry Analysis

Your industry analysis doesn’t have to be a comprehensive report on what’s going on in your market. However, you should conduct an analysis to ensure the market size is growing (if not, you might want to diversify), and to help identify new opportunities for growth.

Competitive Analysis & Advantage

Similarly, to your industry analysis, your competitive analysis doesn’t have to be a thorough report listing every detail about every competitor. Rather, in addition to defining who your key competitors are, you should list their strengths & weaknesses.

Most importantly, use this analysis to determine your current competitive advantages and ways to develop additional advantages.

Marketing Plan

In addition to your strategic plan, I recommend you develop a comprehensive marketing plan describing how you will attract prospects, convert them to paying customers and maximize your lifetime customer value.

Include a summary of your marketing plan in your strategic plan.

Operations Plan

Your operations plan helps you transform your goals and opportunities into reality. In this section of your plan, you will identify each of the individual projects that comprise your larger goals and how these projects will be completed.

Financial Projections

The final section of your strategic plan is your financial projections. Your financial projections help in multiple ways. First, you can use a financial model to assess the potential results for each opportunity you consider pursuing.

You should develop your complete strategic plan each year, and then update it monthly as actual results come in and you gain more clarity and intelligence. While you will rarely achieve the precise goals established in your strategic plan, scores of research show that you’ll come much closer to them versus if you didn’t plan at all. So, develop your strategic plan today, and achieve the goals you desire.

 

Why on-the-job training is becoming the new college degree

Why on-the-job training is becoming the new college degree

Apprenticeships, once considered an “old-fashioned” training pathway limited to very specific trades, are gaining ground today as a highly effective and efficient route to a rewarding career.

According to a recent survey, 62 percent of Americans believe apprenticeships and other on-the-job training programs make workers more employable than a college degree.

About seven in 10 U.S. adults say learning a specific trade is better for finding a job than a bachelor’s degree (68 percent) and that college degrees aren’t worth as much as they used to be (69 percent).

A majority disagree that completing an apprenticeship will limit one’s future employment options (71 percent) and that earn-while-learning programs generally lead to a lower salary than occupations requiring a college degree (60 percent).

Today, the apprenticeship model is expanding to include a much wider range of career pathways.

Structured coaching relationships and mentor-ships in many corporate businesses embody the spirit of apprenticeship: an experienced worker passing on his or her knowledge, skills, and expertise to a worker new to the field.

What apprenticeships bring to workers—and companies

Most people would prefer to learn by actively doing something rather than by passively hearing it. (This is one shortcoming of the current learning model prevalent in America’s college culture, where 75-minute lectures and copious note-taking are often the order of the day.)

Today’s younger generations, whom I call the Why Generation due to their innately inquisitive nature, live for experiences.

To them, experience is everything. A learning-by-doing model plays to this strength and can engage Generations Y and Z at a much deeper level than lecture-driven methods.

Learning by doing isn’t a new concept. A quote sometimes attributed to Benjamin Franklin (himself once an apprentice to his brother in the printing trade) says: “Tell me and I forget. Teach me and I remember. Involve me and I learn.”

According to educator Edgar Dale, over a two-week period we remember only:

10 percent of what we read,

20 percent of what we hear,

30 percent of what we see,

50 percent of what we hear and see,

70 percent of what we say and write, and

90 percent of what we actually participate in.

Workers who don’t just learn, but actually experience their field will be infinitely better equipped to succeed in the work they’ve chosen. They will also benefit by completing their training at a fraction of the cost of many other post secondary training pathways.

Businesses that invest in apprenticeship training programs stand to reap the incalculable advantage of a carefully trained, skilled workforce that can deliver exactly what their ever-evolving market requires.

Apprenticeships also give firms the opportunity to start building a foundation of employee trust and loyalty in a world where 43 percent of millennial and 61 percent of Gen Z workers plan to leave their jobs within two years.

Making apprenticeship a path to the future

While recent survey results are encouraging, there is still much work to be done in high school guidance offices, in public awareness, and in legislative action to promote apprenticeships.

Apprenticeships are for anyone who wants to learn by doing, avoid significant educational debt, and get started in a rewarding, high-demand career. And with an increasing number of companies joining the apprenticeship movement, this once-old-fashioned training pathway is fast becoming a route to the future.