Can Savvy Investors Thrive in Dayton’s Rental Market Despite High Interest Rates? - Article Banner

Dayton, Ohio, once a hub for manufacturing and innovation, is currently emerging as a hotspot for real estate investors. The city’s rental market has been gaining momentum as more people are attracted to its affordable cost of living and vibrant community. 

With a diverse population and growing industries such as healthcare, education, and logistics, Dayton presents ample opportunities for rental income and property appreciation. However, like many parts of the U.S., Dayton is also experiencing rising interest rates. 

Rising interest rates can be a double-edged sword for real estate investors. On one hand, they indicate a strengthening economy, but on the other hand, they can eat into the profits through increased mortgage costs. 

It becomes imperative for investors to adapt their strategies to not only safeguard their investments, but also to capitalize on new opportunities that arise in a changing economic environment.

Here are some strategies based on a combination of market analysis, intelligent property selection, and innovative management practices, which savvy investors can use to still thrive in Dayton’s rental market despite the challenges posed by rising interest rates. No matter which option you prefer, we recommend that you speak with your trusted financial advisor when investigating any financing, refinancing, or other alternative options.

How Do Rising Interest Rates Affect Real Estate Investment in Dayton?

Dayton’s rental market has seen a steady increase in both rental prices and demand. The median rent for a one-bedroom apartment has grown over the past few years, making rental properties an attractive investment.

Areas like Downtown Dayton, Oregon District, and the Salem Avenue Peace Corridor are gaining popularity among renters. Downtown Dayton is attracting young professionals due to its urban amenities and the resurgence of businesses. Oregon District is known for its historic charm and nightlife, whereas the Salem Avenue Peace Corridor appeals to renters due to the convenient location and the availability of units.

However, interest rates have also been on an upward trend, following the national trends, which is partly a response to economic recovery and inflation pressures.

When interest rates rise, the cost of borrowing increases. This can deter some investors from entering the market or expanding their portfolios. However, for those with existing properties, it could mean a less competitive market.

For investors with variable-rate mortgages, rising interest rates mean higher monthly mortgage payments. This can reduce the cash flow from rental income, making it essential to evaluate whether the rental income will be sufficient to cover the increased costs.

As interest rates rise, some potential homebuyers may be priced out of the market, leading to increased demand for rentals. This could be beneficial for landlords as it may lead to higher occupancy rates and potentially higher rents. 

However, it’s important to gauge the local economic conditions, as excessive rental hikes could lead to vacancies if not in line with the local wage growth.

Strategies for Investors to Thrive in the Dayton Market

Dayton’s rental market presents ample opportunities for the discerning investor. To make the most of these opportunities, especially in the context of rising interest rates, investors need to employ multifaceted strategies. Let’s delve into some key tactics:

1. Select a Property with Close Proximity to Amenities, Neighborhood Appeal, and Potential for Growth and Appreciation

Selecting the right property is the cornerstone of successful real estate investment. Look for properties in neighborhoods with a strong sense of community that are in close proximity to amenities like shopping centers, parks, and public transportation. 

Additionally, identify neighborhoods that are poised for growth or undergoing gentrification, as these areas could offer the best potential for property appreciation.

2. Understand and Negotiate Financing Options

With interest rates on the rise, it’s crucial to secure the best financing deal possible. Explore different mortgage options, and don’t hesitate to negotiate terms with lenders. Sometimes, a slightly higher down payment can result in significantly lower interest rates. 

Also, consider exploring government programs that offer favorable financing options for real estate investments.

3. Implement Renovation and Value-Add Strategies

Purchasing properties that need some level of renovation can sometimes offer the best returns. Focus on improvements that will not only increase the property’s value but also make it more appealing to renters, such as updating kitchens, improving landscaping, and adding energy-efficient appliances.

4. Make Use of Technology in Property Management

Embracing technology can significantly streamline property management processes. Utilize property management software to keep track of rent payments, maintenance requests, and tenant communications. 

Incorporating smart home technology such as smart locks and thermostats can make your property more appealing to tech-savvy renters and also lead to savings in utility costs.

5. Diversify Revenue Streams with Short-Term Rentals and Ancillary Services

When diversifying revenue streams, it’s essential to consider various avenues that can enhance the profitability of your investment. Short-term rentals, for instance, can be an excellent way to capitalize on high-demand seasons or events in Dayton. 

Platforms like Airbnb or VRBO make it convenient to list your property. However, be sure to understand local regulations regarding short-term rentals as some areas may have restrictions or require special permits.

In addition to short-term rentals, ancillary services can also add value. For example, offering fully furnished units can attract a demographic such as business travelers, students, or individuals relocating for work, who are willing to pay a premium for the convenience.

You can also attract a broader pool of potential tenants by allowing pets, as this is a feature that many renters look for. Charge a reasonable pet deposit or slightly higher rent to account for the additional wear and tear.

6. Foster Strong Tenant Relationships with Open Communication and Regular Maintenance

Fostering strong relationships with tenants is vital for reducing tenant turnover, which can be costly. Keep lines of communication open. Let tenants know they can reach out with concerns and ensure you are responsive. Regularly check-in with tenants to make sure they are satisfied.

Respond to maintenance issues promptly. Not only is this part of your responsibility as a landlord, but it shows that you care about providing a quality living environment. It is also important to occasionally engage with your tenants through community events, holiday greetings, or simple gestures like a welcome basket for new tenants.

7. Undertake Periodic Cash Flow Analysis and Optimization

As a real estate investor, it’s critical to keep a close eye on the financial health of your investment. Regularly review all expenses associated with the property, including maintenance, taxes, insurance, and property management fees. Look for areas where you can possibly reduce costs without compromising quality.

Periodically assess the market to ensure that your rent is competitive. Be aware of the economic conditions in Dayton and adjust rents accordingly, but be cautious not to overprice and risk vacancies. Sometimes spending money to make money makes sense. For instance, energy-efficient upgrades might have upfront costs but can reduce utility expenses in the long run.

8. Diversify Your Real Estate Portfolio

Investment diversification is a tried and true principle of investment strategy. Invest in different types of properties – such as single-family homes, multi-family units, or commercial properties. Each type of property can react differently to economic conditions. Besides, within Dayton, different neighborhoods have different growth potentials. Diversifying across neighborhoods can hedge against localized downturns. 

Consider diversifying into real estate investment trusts (REITs) or real estate crowdfunding in addition to physical properties. These can offer real estate exposure without the need for direct management.

9. Refinance as a Way to Make Progress

Homeowners have the option to assess their equity and address high-interest debt by opting for a cash-out refinance. This refinancing approach involves converting the equity in the investment property into cash and replacing the existing mortgage with a new loan.

The loans generally have a fixed rate. These fixed rates don’t fluctuate according to interest rate fluctuations. And the difference between the mortgage and loan can be your income, and there is no tax liability on the same, saving you income and tax payments. 

You can refinance your mortgage, or you can also consolidate your debts. If you have doubts about the interest rates, you can go for a fixed-rate mortgage, which will assure you lower interest rates. 

Consider home equity loans and home equity lines of credit as options for accessing home equity, and you can choose between these options per your suitability. The difference in interest rates can be significant so be sure to talk to your lender about all of your different options.

10. Explore Alternative Financing Options

When interest rates are climbing, it becomes crucial to explore different financial options. There are multiple financing options you can strategize to form the income potential in the rental market. There are many alternative financing options to traditional bank loans, like private lenders, partnerships, and even crowdfunding. 

These alternative options can provide flexibility and competitive rates, which can help you invest in the rental property without thinking much about the rising interest rates. However, you must be attentive to the terms and conditions of choosing any of the options mentioned above and understand the associated risks. 

Utilizing leverage when purchasing property can assist in stabilizing your financial situation and kickstarting rental income. It can effectively reduce costs and help maintain a balanced cash flow until the situation stabilizes. You can later focus on the rent collection and become strict about it, so you can have the income flowing in the tough times and maintain cash flow in the case of uncertainty.

11. Explore Value-add Opportunities

Value-add properties need some repairs, renovation or improvements. You can make those renovations and improvements and have less total investment in the property. This is one of the promising and easiest ways to get through the rising interest rates and the impact of it. 

The value-add options will renew a source of income and increase the property’s overall value. 

You can also get the option of selling the property once its value rises. The value of value-add properties rises quickly, so you can have an opportunity to get cash flows for future market ambiguity. 

If you keep the property long-term, the property will appreciate as the real estate market in Dayton is dynamic. In the long term, you will get income from rental fees, the value will rise, and the rising interests will stabilize, leaving you with enhanced opportunities to invest in your property.

Get Help From a Professional Partner

Property ManagementFor investors looking to thrive in Dayton’s rental market amid rising interest rates, property management companies can be invaluable assets. These companies specialize in the day-to-day management of real estate properties and can help investors streamline operations, enhance tenant satisfaction, and ultimately bolster their return on investment (ROI). 

Property management companies have their finger on the pulse of the local real estate market. With their extensive knowledge and data, they can provide insights into rental trends, neighborhood growth prospects, and property values. This information can help investors make informed decisions when selecting properties, ensuring they invest in areas with high rental demand and appreciation potential.

Moreover, they manage tenant screening, ensuring consistent rental income through reliable occupants. These companies are adept at navigating legal requirements, mitigating compliance risks. Through established networks, they can handle maintenance efficiently, preserving property condition and value. They also employ modern technologies for streamlined property management, enhancing tenant satisfaction.

ManCo Property Services is one such leading property management firm in Dayton, providing top-notch customer services in Greater Dayton Area, including Dayton, Harrison Township, Kettering, Riverside, Beavercreek, Xenia, Miamisburg, West Carrollton, Huber Heights, Vandalia, Englewood, Moraine, Centerville, Oakwood, and neighboring areas.

If you are looking for a holistic package of services that streamline operations, mitigate risks, and optimize revenues despite the headwinds of rising interest rates, connect with us at ManCo Property Services.

Please note: we recommend that you speak with your trusted financial advisor when investigating any financing, refinancing, or other alternative options.