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From shifts in property value to an uplift in demand for rentals, find out how rising interest rates can affect landlords.

How Will Rising Interest Rates Affect Landlords?

First, a note on vocabulary: at Belong, we hate the words “landlord” and "tenant." Instead, we call everyone in our residential network Homeowners and Residents. Because language matters, and we want your home to be loved, not just rented. That said, we use the terms “homeowner,” “landlord,” and “investor” interchangeably in this post to help more people find this useful information. To learn more about why we’re working to change how people think about renting, see this article in TechCrunch.

While interest rates have been historically low over the last twenty years, they are currently on the rise, raising concerns within the real estate industry.  

On March 16th, the Fed approved a 0.25 percentage point rate hike. During their May meeting, the FOMC raised the benchmark rate by half-a-percentage point, following the quarter-point increase in March. Experts suggest that several more hikes are likely to follow later this year. Consequently, landlords need to understand how they will be affected by these rising interest rates.

Federal Open Market Committee (FOMC), often referred to as the Fed, targets a specific interest rate. The FOMC, or Fed, is composed of seven governors of the Federal Reserve Board and five Federal Reserve Bank presidents. The FOMC meets eight times each year to set the target federal funds rate. In response to this target, the Federal Reserve System will adjust the money supply so that interest rates will move toward the target rate. 

The federal funds rate is the interest rate banks will pay for overnight borrowing from the federal funds market. Any change in this interest rate will affect consumer interest rates, yields on Treasury notes, and indirectly, long-term conventional mortgage interest rates. Fixed rates on conventional mortgages are set slightly higher than the yields on 30-year Treasury bonds. 

When the Fed raises the federal funds target rate, it increases the cost of credit throughout the economy. Generally, the Fed will cut interest rates when the economy is struggling and raise them when it is strong. 

How do rising interest rates affect the housing market?

An overall increase in interest rates will have a cooling effect on the housing market. When interest rates increase on mortgages, borrowing the same amount of money costs more—a higher interest rate results in a higher monthly mortgage payment for most buyers. As a result, homebuyers may suspend or slow future home purchases. 

When borrowing costs increase, purchasing a home becomes more costly. This is especially true for first-time buyers because they do not have equity in a current home. After relatively lower interest rates, potential homebuyers are likely to be more sensitive to cost increases. As a result, current tenants may choose to stay in a rental property for an extended period. When more people remain in rentals, it increases the demand in the rental market. 

Interest rates also affect real estate values, consistent with other investment vehicles. For landlords, an increase in interest rates may result in slower appreciation or a decrease in the value of a rental property. Increased interest rates can impact the availability of capital and the demand for investments. Changes in availability affect the supply and demand for property and, as a result, the price.

How do rising interest rates affect real estate investors? 

Interest rate increases equally impact real estate investors. Like traditional homebuyers, it will cost landlords more to borrow for new real estate investments. 

Purchasing power for rental properties and cash flow concerns

Landlords and real estate investors looking to purchase additional properties will have higher borrowing costs, impacting their cash flow and annual yield. Landlords should continue to carefully calculate cash flows and look for ways to adjust to higher borrowing costs. 

Some may suggest that landlords purchase new rental properties with a plan to refinance when interest rates decrease. However, we do not know if and when rates may decrease. Refinancing also comes with additional costs and restarts the amortization of a loan. 

Real estate investors can combat higher borrowing costs by improving their credit scores and shopping around for mortgages with the best rates.  

Cash will continue to reign during periods of growing interest rates. The increased borrowing costs caused by these interest rates may decrease the overall cash flow for landlords. Subsequently, it may become more challenging to compete for fewer ideal investment properties, and cash buyers will continue to see less competition. 

Real estate investors will likely see improved capitalization rates due to increased interest rates. A lower capitalization rate can indicate less investment risk. However, capitalization rates don't factor in increased borrowing costs. The higher demand for rental housing can improve your cap rates as a landlord. Similar to a decrease in cash flow, lower cap rates can make finding deals for new investment properties more difficult.

Concerned about rising interest rates? Look for favorable fundamentals

An increase in interest rates indicates that the Fed believes the economy is strong. Interest rates are just one factor used to assess the housing market. The FOMC only raises rates if they determine that the economy can withstand the change. Even after recent increases, interest rates remain historically low. 

While interest rates provide crucial decision-making metrics, landlords and investors should continue to focus on the fundamentals. A property valuation will continue to provide fair market value of a real estate property. Comparing each property valuation in conjunction with a cash flow and profit opportunity analysis will allow you to evaluate the risk and opportunity of each investment. Further, by carefully considering the purpose and horizon of the investment, you can be sure you're making ideal ventures in the current market.

While rising interest rates will affect landlords in several ways, immense opportunity still exists in real estate investment. Landlords can mitigate cash flow changes by carefully calculating costs and options. 

Belong offers a form for homeowners to estimate how much they can make renting out their homes. We also guarantee our landlords rental income even when a home is vacant. Make the most of increasing interest rates and see how much you can earn with Belong. 

Interest rates have been historically low in recent times, but they on the rise. Find out how rising interest rates affect landlords with rental property.

Uncover the ins and outs of remotely managing an out-of-state property as a landlord.

Managing An Out-of-State Rental Property

Choosing to manage an out-of-state property as a landlord can provide unique upsides. However, managing a rental remotely from another location comes with some distinct challenges. With careful consideration and an understanding of property management solutions, landlords can be sure their out-of-state rental brings them fewer headaches and more success. 

Out of state rental property considerations 

The local real estate market will be a driving force in your decision to add a rental property to your portfolio. A vital location will be on a clear path for growth or future revitalization. 

You may also choose to evaluate other factors, including:

Local amenities like restaurants, trails, and parks 

As with any rental property, it’s critical to estimate the potential cash flow of each potential property. Accurate calculations will provide you with essential information to aid decision-making. 

Accurately calculating your potential cash flow for an out-of-state rental property requires going beyond simple calculations that take principal, interest, taxes, and hazard insurance into account. You may also need to account for mortgage insurance, repairs, maintenance, turnover, and capital expenditures. 

Do you enjoy the location and things the city or state offers? It’s helpful to consider areas that you might personally enjoy. You may be spending time there, especially when establishing your rental property. Choosing an appropriate location is also vital if you plan on using the home as a future vacation or retirement home. 

Carefully research the local laws regarding rental properties. Some states or cities may have specific provisions around tenant screening processes. You may also find guidelines around if and how you can decline tenant renewals, notices, and evictions. 

You may need to make changes to your lease agreement to ensure it’s consistent with local laws. If you’re unfamiliar with landlord-tenant laws, it may also be prudent to consult with an attorney familiar with local laws. While legal considerations may be initially tedious, careful due diligence will save you grief in the long run. 

How to make an out of state rental property easier to manage 

Set clear tenant responsibilities and expectations 

Communicate expectations with potential tenants and ensure that your lease agreement outlines any important details. For example, if your tenant is responsible for lawn care, be sure that you define and set guidelines around this responsibility. 

Your proximity to your out-of-state rental property may dictate how you manage maintenance, emergency repairs, and vacancies. What aspects of these processes need to be communicated with your tenant or included in your lease agreement?

Your out-of-state rental property will inevitably need maintenance and repairs. If and when the A/C unit goes out in the middle of August, you don’t want to be searching high and low for a local, trustworthy repair company. 

Consider doing preliminary research and compiling a list of local resources before you may need them. You can check sites like Nextdoor for reviews and recommendations. Finding a reliable handyperson for your out-of-state rental property will save you lots of time and money in the long run. 

Defined systems, processes, and automation tools will make managing an out-of-state rental property immensely easier.

If this is your first time using automation tools, consider outlining all of the processes associated with your property: 

You can choose the tools that are best suited to your specific needs. You may need to try different solutions or combine multiple tools to find the best combination for your rental property. 

Build relationships with your out of state rental property’s HOA

While you may not be the one living in your out-of-state rental property, it’s to your advantage to cultivate a relationship with the local HOA, if there is one. Failing to develop a good relationship can result in unexpected assessments, fines, and violations. 

To maintain a harmonious relationship, be sure that you are familiar with HOA guidelines and align your lease agreement with those guidelines. Always be sure to pay HOA dues promptly and address any violations in a timely and respectful manner. 

Ease the burden of managing an out-of-state rental property by using property management software, hiring a property management company, or individual property manager. 

Generally, property management services or software includes:

Choosing the right property management solution will help you find better tenants, experience fewer vacancies, and streamline your rental management. A property management solution will eliminate any hassle and help shift the burden of managing an out-of-state rental property. 

Using property management software can be a great start, especially if you have lots of experience managing rental properties. While the software will likely be the least expensive property management solution, it still requires you to execute many tasks. Carefully research potential software and look for a specific solution for your circumstances. 

Learn how to manage a rental property remotely as we uncover the ins and outs of managing an out-of-state property as a landlord.

We ranked the best accounting software for landlords to stay on top of your rental income.

Accounting Software for Landlords, Ranked

The financial benefits of managing a rental property for landlords are numerous. Still, you can only actualize them with careful accounting habits and tools. 

Real estate accounting needs to incorporate four key three key aspects:

These are all the costs associated with managing your rental property. Look for an accounting tool that will automatically track your expenses.

This category includes all the money you make from your rental property. 

Not all accounting tools will provide robust reporting options, but careful financial analysis is critical for a successful rental property.   

How to choose the right tool to manage your rentals

Landlords will need to consider their specific needs to determine which accounting software is best for their needs. 

Take inventory of your rental property portfolio 

Each rental property accounting software is designed for a specific type of landlord. There are less expensive options if you manage the finances for just one or two rental properties. However, suppose you are managing a large number of rental properties. In that case, you'll need to look for accounting software specifically designed for that need. 

Consider your CPA or tax preparation preferences 

If you currently or plan to work with a CPA or tax preparer, it can be helpful to seek their advice on which accounting software they prefer. Most tax and accounting professionals will be familiar with general accounting tools like Quickbooks or Quicken. If your CPA works with other landlords, they may have unique insights into specific platforms and any downsides or benefits. 

Make a list and look for specific features

Are there specific tools or features that your accounting software needs to have? It's helpful to make a list of these functions before you start your search to ensure that your chosen software has those features.

Separate chart of accounts for rent/deposits 

Multiple payment options such as ACH and credit cards

Types of accounting software for landlords 

Landlords can choose from several different types of accounting software. Standard options fall into a few distinct categories. 

If you're financially savvy or particularly good with spreadsheets, you may be able to use Google Sheets or Excel in place of traditional accounting software. Many free accounting templates can help you get started with this option. We don't recommend DIY accounting software for landlords unless you feel 100% comfortable managing and troubleshooting any issues. 

Many landlords may choose to use accounting software that hasn't been developed specifically for real estate. Accounting software like Quickbooks, Freshbooks, or Quicken can be a solid choice for landlords already familiar with these tools. 

These types of software won't have features specific to rental property, particularly for rent collection. Still, they can be suitable for landlords with solid processes and procedures. 

Free rental property accounting software exists, but they're only suitable for certain landlords. We've found that they don't always include critical features and can expose you to potential financial errors. We've included a review of one popular free software to see how it stacks up against the competition. 

One of the best ways to stay on top of your accounting (without the need for expensive software), is to partner with a good property manager. Property management provides support not only for accounting needs, but also tenant placement, screening, maintenance, and more. Working with a property manager significantly reduces the time spent completing administrative tasks and saves money in the long run.

Many modern property management companies offer an app or landlord portal that streamlines communication and tracks repair requests. It should also manage all of your rental receipts and incomings/outgoings, making your finances simple to find at tax time.

We've included information in our ranking for each software's pricing. However, it's important to note that each software has a different pricing structure and that these prices are subject to change.  

Landlords should carefully consider different pricing aspects, including free trials, potential software set-up fees, required monthly minimums, upgrade, and add-on charges.

Best 2022 Rental Property Accounting Software 

ZenLord Pro is free software that offers rent collection, accounting & bookkeeping, a work order system, tenant communication, free screenings, and lease agreements. 

Pros: Users like that the software can generate tenant applications and leases. While the platform is basic, it should address the needs of landlords with just one or a few properties. 

Cons: You may only be able to add information for one bank to your account. For some, this could cause some difficulties. 

Pricing: ZenLord Pro is one of very few free accounting software choices for landlords. They also offer two upgraded versions with additional features that run $7 and $9 per month. 

Customer review: "Overall: I solved late rent. That is the biggest concern for me. It made sure my tenants knew that we were watching payments and we would know before rent was due if they were good to clear the payment. Communication through the website/text platform is great: I like the feature where it gives you a balance update. So you know if your tenant is good for the rent. Maintenance platform is useful for scheduling repairs. The UX design needs some work, but it's something that can be changed easily. Still super easy to use…" - Nishul P.

Quickbooks - Best Accounting-only Software

We ranked the best accounting software and financial solutions for landlords to stay on top of your rental income.

Jordan Newsom

Jordan Newsom is a highly-caffeinated writer who loves delighting readers, using content to teach, and broadening perspectives. When she's not behind a computer screen, she's hunting down the best coffee shops, breweries, and restaurant patios in Denver, Colorado.

Natalie McNeal

Andrea Vale

Annalise Mantz

Lauren Slagter

Adam Hanft

Natalie McNeal

Andrea Vale

Annalise Mantz

Lauren Slagter

Adam Hanft