Seeing patterns and trends in your rental income doesn't happen naturally; you have to work for it. But how do you know where to start?
In this Cloudfox guide, we'll show you fifteen ways you can use the data you already have to highlight significant trends and patterns in how your rental income is made.
You are going to find this helpful, so buckle up!
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Understanding your portfolio's historical data is crucial to effective trend forecasting because it shows you how patterns in your business have formed.
Dig deep into each property's monthly or yearly rental income over time. Look for patterns that show seasonal fluctuations, rent increase patterns, economic change or other anomalies.
Then, dig even deeper and look at units. This can give you information on patterns like occupancy in relation to room updates. Studying data at this molecular level can also provide you with insight into who your tenants are, how they behave and what they think about your properties.
If you have a more extensive portfolio, remember to zoom out and analyse how your properties behave across locations. This tactic will allow you to identify regional differences, which may highlight investment opportunities or areas that need more marketing.
As with any business, you'll always experience seasonal variations relating to demand and pricing. In property, that's often governed by several things, but mostly by when your tenants are most actively looking to move.
Establishing what your seasonal patterns are helps you forecast and plan. That could include creating renovation workflows that help you establish a better rent rate for the next window of eager tenants.
Here’s a guide we wrote on “How to make more informed decisions on rent adjustments” that will help.
And if you find you have a naturally quiet period with rooms ready to go, you can explore strategies like Hotelling, which works great for our PBSA and BTR clients.
Use your data to determine the correlation between the occupancy rates and rental income. What you find here can help you adjust your rental strategies accordingly, ensuring that your property is occupied most of the time.
Remember to key in market changes when you report because this will show you if regional socioeconomic factors or more significant market changes dictate a blip or forming pattern.
Doing this will help you identify any market-specific risks and opportunities.
It is always advisable to analyse lease renewal patterns and their impact on rental income. Doing so lets you identify opportunities to optimise rental rates during lease renewals.
We've mentioned Hotelling before, but it's worth mentioning again because it can offer a short-let solution without causing any negative impact on your long-term tenants. And if you operate a PBSA or BTR, business, tactics like this could work in line with seasonal shifts in tenancies.
You should always keep your tenant profile up to date, not just by unit and property, but by location. Having this data on hand means you can use it to analyse rental income by considering the tenants' demographics.
For example, are you attracting the right tenant who wants to pay your rental rates and stay with you long-term? Or do you need to readjust your marketing strategy?
You might also recognise a trend for much shorter-term tenancies. Ask yourself if this is in line with what you expected. If not, then it's time to adjust.
In some cases, you may even establish tenants' reliance on significant employers in the area. If that's the case, how can you minimise the risk associated with that business or maximise your rental opportunities?
A property-specific analysis helps identify the unique factors that influence your rental income. This could be traits like property size, its type and the amenities offered. What you are looking for here is stability and opportunity across your portfolio from property to property.
Your analysis might highlight opportunities for strategies like rental shares in more challenging markets to earn more from individual units. Equally, it could underline investments needed to reach those higher rent brackets.
Your rent roll needs regular review for each property to effectively manage your real estate portfolio. This involves analysing the rental rates, lease expirations, and tenant turnover trends. Doing so allows you to identify issues early and take action to address them.
For instance, if you notice a decline in rental rates, you may need to adjust your pricing strategy or consider upgrading the property to attract higher-paying tenants.
Let's say you spot a high turnover rate. In that case, you may need to improve tenant relations or reevaluate your screening process to ensure you select reliable tenants likely to stay longer.
Keeping a close eye on broader economic indicators that affect your rental income trends is essential. Things to consider include employment rates, which directly impact the demand for rental properties.
Higher employment rates generally translate into higher demand for rental properties, increasing rental income. On the other hand, a decrease in employment rates can adversely affect rental income trends.
Similarly, you'll want to keep an eye on GDP growth. A higher GDP can lead to increased economic activity, resulting in higher demand for rental properties and, consequently, higher rental income. The reverse could see tenants in areas with higher property rates moving out.
Lastly, inflation is another crucial economic indicator to monitor as it can impact your rental income trends. Higher inflation can result in a rise in the cost of living, decreasing disposable income. At the same time, lower inflation allows tenants to opt for bigger, bolder units or properties.
One way to assess the performance of your portfolio of rental properties is to benchmark its rental income against industry standards.
You start by looking at the rental income generated by each property and assessing how it compares to the average rental income for similar properties in the market.
Doing so lets you identify which properties are underperforming and which outperform relative to the market and take appropriate action to optimise your income.
One helpful tool is the capitalisation rate when assessing the relationship between property value and rental income. By evaluating cap rates, you can gain insights into a property's potential return on investment.
The percentage of a property's market value that its net operating income (NOI) represents is known as the cap rate.
A higher cap rate generally indicates a higher return on investment (ROI), while a lower cap rate suggests less potential for income.
When you look at this data, consider changes in cap rates over time, as these can signal shifts in property performance or market conditions. This means you can buy, sell, or invest based on real data.
When managing a real estate portfolio, keeping a close eye on your operating expenses in relation to the rental income is essential.
You need to thoroughly analyse the expenses and identify any trends in costs that impact the overall profitability of your portfolio. By doing so, you'll make more informed decisions about financial performance, which can include adjusting your rental prices, reducing unnecessary expenses, or any other strategic actions that may be necessary.
Using an integration like Pleo with Xero could be just the tool for the job!
It can be hugely beneficial for landlords to conduct tenant satisfaction surveys to gather valuable feedback on rental rates. These surveys help you determine whether your rental rates need adjusting or if investment in updating units could be rewarded with a higher rent charge.
Having open conversations about rental charges breeds confidence and trust with your tenants, which is beneficial if your tenants tend to move on seasonally. The more optimistic they feel about renting with you, the more likely they will consider staying.
Keeping yourself informed about any regulatory changes that might impact your rental income is crucial. This includes awareness of new laws or policies that could affect the real estate market.
By staying up-to-date, you can anticipate potential challenges and adapt to new requirements as necessary, bettering your investments.
We've talked a lot about data. What we haven't talked about is investing time in creating a working culture that allows your team to openly share findings and feelings about the tenants, properties and units in your portfolio.
Staff on the ground are your biggest connection to your portfolio and rental income. Why? Because they can perceive beyond the data. They have first-hand experience. They engage with your customers and your product.
By staying in touch with them, you can gather more detailed insights into the latest trends in the market, such as tenant demand, rental rates, and vacancy rates, among others.
Your business creates data daily. There's data in every lead you have and every tenancy won. But how effective are you in capturing it?
The best chance you have at capturing all the data you need is to get set up with the right tools. That's why we recommend running Xero as the financial arm of your property management system (PMS).
Xero is geared to integrate with all of the bespoke SaaS software you'll need to run your operations and collect and report on data for analysis. It's the only reliable financial tool we've found to run effective and detailed property analysis alongside real-time financial information.
It also works with forecasting models, which is another beneficial bit of kit.
Developing a forecasting model that can predict future rental income based on historical data involves analysing past rental income, occupancy rates, market trends, and other relevant factors.
Luckily for you, the Xero integration with Fathom makes a perfect prediction tool.
If you are looking for actual trends and patterns in your rental income, then what you are really asking yourself is, "Is my portfolio stable and profitable?" And that's a perfectly valid question. One that you should revisit regularly.
Ensuring stability and profitability is about arming yourself with as much factual information as possible to make better decisions. That means getting a handle on your data.
Reporting with the correct data shouldn't feel like pulling teeth, so call us if you've read this far and find yourself scratching your head.
We'll help you implement and train your staff on the right software, set up automated reporting and have reliable data there for you when you need it!