How Trended Vs. Untrended Rents Project a Multifamily Property's Rental Income
When looking at the revenue a multifamily property will provide over the long term, there are two different ways to project your property’s rental income: trended rent and untrended rent.
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What Are Trended Rents?
The first is to use what are known as trended rents. Trended rents will grow, based on historical market data as well as projected rent growth of the market as a whole. This also would take inflation into account, along with other factors like changes in demand and oversupply or undersupply. Done correctly, trended rents can paint an accurate picture of rental income during times of stability — but during major upheavals in the economy, it may fall short if rents were to decrease.
What Are Untrended Rents?
Untrended rents are, simply, today’s rental rates, unchanged by projected increases at the market or national level. Nearly all multifamily markets historically show at least some rent growth, however, so using this approach generally means underestimating your rental revenues from your property. Basing your rental projections on untrended rents is a far more conservative approach to anticipating your investment’s returns, but it is a far safer bet in the event of sudden changes to the economy. That said, sustained rental decreases at the market level — though unlikely — could still result in an inaccurate measure even with this more cautious approach.
Related Questions
What are the differences between trended and untrended rents?
The main difference between trended and untrended rents is that trended rents take into account historical market data and projected rent growth of the market as a whole, while untrended rents are simply today's rental rates, unchanged by projected increases at the market or national level. Trended rents can paint an accurate picture of rental income during times of stability, but during major upheavals in the economy, it may fall short if rents were to decrease. On the other hand, using untrended rents is a more conservative approach to anticipating your investment’s returns, but it is a far safer bet in the event of sudden changes to the economy.
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How does trended rent data help project a multifamily property's rental income?
Trended rent data helps project a multifamily property's rental income by taking into account historical market data as well as projected rent growth of the market as a whole. This also takes inflation into account, along with other factors like changes in demand and oversupply or undersupply. This approach paints an accurate picture of rental income during times of stability, but may fall short during major upheavals in the economy if rents were to decrease.
What are the advantages of using trended rent data to project rental income?
The main advantage of using trended rent data to project rental income is that it takes into account historical market data as well as projected rent growth of the market as a whole. This also takes inflation into account, along with other factors like changes in demand and oversupply or undersupply. This approach can paint an accurate picture of rental income during times of stability, but may fall short if rents were to decrease during major upheavals in the economy.
How can trended rent data help investors make better decisions when evaluating a multifamily property?
Trended rent data can help investors make better decisions when evaluating a multifamily property by providing a more accurate picture of rental income during times of stability. Trended rents take into account historical market data, projected rent growth of the market as a whole, inflation, changes in demand, and oversupply or undersupply. This data can help investors make more informed decisions about the potential returns of their investment.
What are the potential risks of relying on untrended rent data to project rental income?
The potential risks of relying on untrended rent data to project rental income include underestimating rental revenues from the property and being unable to accurately measure rental income in the event of sudden changes to the economy. Sustained rental decreases at the market level, though unlikely, could still result in an inaccurate measure even with this more cautious approach.
Source: Trended Vs. Untrended Rents Project a Multifamily Property's Rental Income
How can investors use trended rent data to accurately project rental income for a multifamily property?
Investors can use trended rent data to accurately project rental income for a multifamily property by taking into account historical market data, projected rent growth of the market as a whole, inflation, changes in demand, and oversupply or undersupply. This approach paints an accurate picture of rental income during times of stability, but may fall short during major upheavals in the economy if rents were to decrease. Source