Rents typically increase during recessions when households are priced out of the market and the industry becomes more competitive. However, it is not always the case. Large multifamily properties experienced a steep 4.1% rent decline in 2009 due to the 2008 economic crisis, while vacancy rates reached a record 10.6%.
The Great Recession affected the housing market because the subprime mortgage crisis significantly contributed to its origin. Additionally, the percentage of renters in the 50 largest US metro areas increased from 36.1% in 2006 to 41.1% in 2014, and rent prices promptly recovered by 2.3% in 2010.
Many people anticipate a recession, which may have left you wondering if your rental business is at risk. Although a recession has yet to be formally proclaimed, analysts believe one may happen in 2023, so it’s best to be ready just in case. To stay afloat as a landlord, keep reading for five ideas on managing rentals during the recession.
1. Work to Keep Current Tenants
Retaining renters you enjoy renting to and who make payments on time is the best method to prevent protracted or sudden vacancies.
Before you can do that, you must first understand what makes a great landlord. In general, tenants prefer landlords who conveniently accept rent payments online, promptly attend to maintenance issues, give them room to enjoy the rental property and privacy, and generally work to create a positive landlord-tenant relationship.
Instead of collecting physical checks, consider using a rent collection app that lets tenants report on-time rent payments to credit bureaus. Also, make sure to be responsive, stay organized, and inform tenants in advance about any changes that may take place.
2. Think About Alternative Uses for Your Rental
Investigate different ways to use the area that can generate cash if your apartment is vacant and it’s taking time to find long-term tenants. Think of using the area as a holiday rental, a mid-term rental, or a studio for production.
If the space still needs to be furnished, these choices might be harder, as it could increase the cost. However, if there is little demand for 12-month rentals in your location, it can help you diversify the types of uses for the property and increase your income.
3. Plan Ahead for Monetary Difficulties with Tenants
A recession may cause your tenants to lose their job unexpectedly, making it more difficult for them to make rent payments, especially if they don’t have an emergency fund. It is crucial to budget for these circumstances to ensure that you can continue to pay off your bills like your mortgage, property taxes, utilities, and other related costs.
Preparing financially for unexpected losses is especially important if you charge a higher rent price or depend on rental income to meet running costs. Save three to six months’ worth of income to meet your property expenses, and try to cut back on other spendings whenever possible.
4. Watch Your Income and Expenses
Keep a close eye on income and cost transactions in addition to being prepared for a financial crisis, especially if you own multiple rentals. This can be done manually using a spreadsheet that includes the cost and category of each transaction.
To have a consolidated platform that aids in managing your rents and keeping track of significant transactions, you can also include one-time transactions gathered from sources. Once all the necessary transactions have been added, you may sort them by the property to discover where you might save costs for each rental.
5. Keep up With the Housing Market
To be able to recognize any important trends in the housing market during a downturn and timely react to them, remember to educate yourself and keep an eye on recent real estate-related news. Also, try not to stay within the reasonable range when establishing your monthly rent, as charging more trying to compensate for some financial losses can be an ineffectual strategy. To stay in the loop, follow the prices of similar properties in your area. For example, when posting a rental property listing on Rentberry, you can see median apartment rental prices for properties of different sizes and with different amenities.
Making sure your rental property will generate a continuous and reliable income stream is the most excellent approach to protect it against economic downturns.
Establishing long-term lease agreements with tenants might be a good idea before a recession hits. Also, consider providing somewhat lower rental prices in exchange for dedication and consistency. Overall income may be slightly reduced as a result, but since a long-term lease guarantees your payment, you can weather the recession without concern.
A strong lease arrangement can reduce many dangers associated with real estate investing, making your rental property recession-proof.
Author’s Bio: Lyle Solomon has extensive legal experience as well as in-depth knowledge and experience in consumer finance and writing. He has been a member of the California State Bar since 2003. He graduated from the University of the Pacific’s McGeorge School of Law in Sacramento, California, in 1998, and currently works for the Oak View Law Group in California as a Principal Attorney.