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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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.
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.