What Should Landlords Do in a Recession?
A lot of our investors and clients are asking us what to do and what to expect with a recession coming. Now, let’s look at this logically: Some people are going to lose their jobs, and won’t be able to afford rent. As a result, landlords will be forced to evict them and start renting at a lower price.
You don’t have to panic; just follow the tips listed below.
The key is doing several things well instead of doing one thing right. It’s a bit like being a professional tennis player, where experts don’t just train to perfect their smash—they also master their grip, stance, footwork, serve, drop shot, clear, and diet.
Their multi-pronged approach allows them to become excellent players on the court.
For landlords, your court is the real estate landscape, and your opponent is the looming recession, where your goal is to stay afloat—or even make a killing—during an economic downturn.
Here’s how we can help you minimize those potential losses (especially since stock markets are going down now, too so investors are losing money there too)
Here are our top 6 tips:
1. Keep Quality Tenants
During a recession, vacancies can last longer as it’s harder to find good tenants. It’s already hard enough getting familiar with tenant screening laws and finding ones that you can trust. Once you gound quality tenants, you need to do everything you can to keep the good ones you have.
Here are a few tips for retaining your best tenants:
- Make sure you have an explicit Lease Agreement to start your relationship on the right foot.
- Communicate reliably and consistently, so they know you’re there for them.
- Be responsive to maintenance requests.
- Respect your tenant’s privacy and always provide notice if you need to check on something.
- Upgrade household appliances if older ones aren’t working well.
2. Improve Your Screening for New Tenants
Tenants: During a recession, loss of income due to layoffs will be the biggest reason tenants won’t be able to afford rent. Another will be less income due to loss of overtime or other variable income. Smart landlords will focus more on the applicant’s employment stability, and the stability of the employer and make sure the applicant can afford the rent.
You first must be more selective with the type of tenants you allow into your rental property. You might want to cut corners to save time and get your properties occupied–but you will regret it once you have problematic tenants aboard.
In an economic recession, more people will seek a place to rent because they can’t afford a home. There will also be more people who are unemployed or underemployed. All this means that you’ll have to be extra careful about who you’re renting to and perform due diligence on every applicant.
You don’t want to end up with someone who can’t pay their rent on time or at all, which will put you in a deeper financial hole on top of the recession’s adverse effects.
So ask lots of questions, carry thorough credit checks, speak to their previous landlord, and verify their employment (or lack thereof). It’ll take extra time upfront, but it’ll save you tons in the long run.
3. Defer Capital Improvements
Because rental income will be negatively affected, you need to cut your expenses to compensate. Instead of replacing a roof entirely, be more aggressive about finding someone to patch it so it lasts another 2-3 years.
Here is a list of a few examples you can skip out on:
- Building a new deck or addition
- Renovating an entire area of the home
- Upgrading the home systems like AC, plumbing, etc.
Now, a word of caution. We’re talking about frivolous expenses here—not necessary repairs. Don’t become a landlord who avoids all maintenance. You still need to address health & safety issues to prevent lawsuits and do other maintenance for property preservation.
4. Become a People Pleaser
No, we’re not suggesting you be a pushover. You should try to please your tenants, so they continue renting from you instead of moving out when the lease is up.
Of course, this doesn’t mean you should start offering free rent or expensive gifts. Instead, promptly respond to their maintenance requests, try to get to know them, and show genuine concern for their well-being.
The last thing you want is tenants to feel like they’re just a number to you. If they do, they’ll be more likely to move out the second they find a better place, leaving your property vacant because the tenant left at such short notice.
5. Make Rational Decisions
Make rational decisions with your rental property, even during an economic recession. Many landlords get emotional about their properties and let their feelings cloud their judgment, leading them to make poor decisions.
For example, you may feel you should lower your rental rates significantly just to keep tenants in your units, but doing so will only result in a loss of income in the long run. Or you might hike up your rent to keep your cash flow solid, but that’ll only scare away tenants.
Instead, evaluate the situation from a big-picture perspective. For example, if the tenant isn’t paying on time, are they good enough to cut them some slack? If the tenant considers leaving, is it worth giving them some incentive to keep them around? Make wise decisions based on individual circumstances; you’ll see challenges as opportunities.
Moreover, resist the urge to sell your property at a bargain just because you’re worried that the market will crash. Take a step back before making rash decisions about your rental property during a recession. If you can weather the storm, you’ll come out on top when the economy eventually recovers.
6. Hire Professional Help
The best tennis players worldwide have a strong team behind them, from their coach to their physiotherapist. No player is an island; everyone needs a support system to achieve greatness.
Similarly, it would be best if you didn’t try to do things alone regarding your rental property business—especially during an economic recession. Instead, hire professional help so you can focus on the bigger picture while leaving the day-to-day tasks to somebody else.
For example, hire a property management company to take care of the nitty-gritty details so you can focus on making bigger decisions about your business. Or, if you’re struggling to keep up with repairs, hire a handyman or woman to take care of those maintenance issues for you.
Set Yourself Up for Success—Even in a Recession
A recession can be challenging, but it doesn’t have to spell disaster for your rental business. Following the tips above, you can weather the storm and come out on top when the economy eventually recovers.
Do you need more help with managing your rental properties?
Logical Property Management has been mastering the craft for more than two decades. We are fully experienced and equipped to protect your investments from the worst of recessions. Get in touch!