RENT Magazine Q4 '22

From a property value perspective, the NOI influences the capitalization rate (CAP rate = Net operating income / Cost of the property) of a rental property. For example, consider an investment property purchased for $100,000. Assume that property rents for $800/month ($9,600/year) and has $2,000/year in maintenance, tax, and insurance expenses. The NOI for that property would be $7,600/year. The CAP rate for that property would be 7.6%. If that same investment property experienced a tenant turnover, there would be an additional expense of approximately $2,500. Assuming 30 days to turn and re-lease the property, there would also be a rental income loss of $800. The NOI for this property would then be $4,300/year. The CAP rate would decrease from 7.6% to 4.3%. This reduction in CAP rate could make the property a riskier investment and could reduce the value of the property. Average residential tenancy ranges from 2.5 to 3 years (Source: Tenant Planet, Inc.). Placing the right tenant in a property can increase the duration of tenancy and decrease tenant turnover events. This can also lead to a much more rewarding tenant-landlord relationship. Great tenants take pride in the rental property and do their part to make it a great home for their family and a stable asset for landlords. Over time, these things increase the value of the rental property by maximizing income and minimizing unplanned expenses. So, how can landlords spot those not-so-easily identified exceptional tenants? What sort of people make great tenants? GREAT TENANTS TAKE PRIDE IN THE RENTAL PROPERTY AND DO THEIR PART TO MAKE IT A GREAT HOME FOR THEIR FAMILY AND A STABLE ASSET FOR LANDLORDS.


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