Question

in class we have been studying high-coupon and lower-coupon bonds, and tge term structure. Are there some qualitive factors that would need to be considered too, when it comes to rental property?

Answer 1

For rental property income or cash flows, following qualitative factors need to be considered:

Macro factors

1) Economic growth rate of the city/town and associated population growth rate. High economic growth rate attracts more people and hence opportunities to earn higher rental income.

2) Local government policies and society environment. Does the aforesaid welcomes the people from other cities/states/nationalities or resists their residence in the city.

3) Association of the city/town with a specific industry. Cities/towns associated with a specific industry like semiconductor/Aerospace/manufacturing grows or decays as per the fortunes of the industries. This directly impacts the rental property income.

4) Interest rates on property loans. Property rent should cover the interest and principal repayments on property.

Micro factors

1)Property price appreciation rate depending on the locality, whether high income or middle income locality.

2) Growth rate of property rent

3) Periodic cash outflow on property maintenance

4) Occupancy rates of properties in the locality

5) Average occupancy and vacancy periods of the properties in the locality.

6) Availability of basic amenities in the locality.