Rents are Falling – What Can Landlords Do About It?
If you’ve been keeping an eye on the rental market, you’ve likely noticed a significant shift in rent prices across the US. The once steady climb has taken a downward turn, particularly in the southern half of the country. Even in the North and Midwest, where prices have remained relatively low, the lack of availability and affordability keeps rents stagnant.
The reality is that rents are on the decline, and with President Biden discussing support for the housing market, the upcoming election could accelerate this trend. Additionally, home prices, according to NAR, are also declining. This shift is reflected in the increased prevalence of rent concessions, now six times higher than in 2019. We’re entering a new era in the tenant/landlord dynamic.
Addressing Dependency on Rent Revenues
For landlords facing stagnant rent revenues, exploring alternative avenues to avoid losses from vacancies and turnovers is crucial. Investing in a reliable property management service to ensure tenant satisfaction and swift re-renting at current prices is a wise move.
Look for property management companies that have strict procedures for managing turnovers quickly and strong rental marketing skills. But still, you should prioritize robust tenant screening processes – you don’t want to sacrifice tenant quality in the name of shorter vacancies.
Anticipating Costs and Challenges
Looking ahead, landlords must brace themselves for rising costs. Inflation has been steadily driving up the cost of goods and services, and that’s expected to continue in 2024/5.
Here are some line items to keep an eye on:
- Property management fees
- Income taxes
- Property taxes
- Landlord insurance
- HOA fees
- Staff salaries
- Financing rates
- Renovation costs
- Appliance purchases
- Marketing costs
So make sure you have an additional cushion in your emergency fund to mitigate any higher expenses.
Falling Rent Prices Across Regions
The multifamily building boom in certain southern and western cities has intensified downward pressure on rents. Moreover, landlords face high refinancing costs and the looming threat of inflation as the economy rebounds. It’s a tough time to be in the rental business.
In the South, where rent prices are dropping, landlords feel the pinch on their bottom line. As the economy recovers, rental unit occupancy is expected to decline, with more renters opting to purchase homes. This and workers returning to the office could further exacerbate the situation.
Responding to Rent Price Erosion
To combat rent price erosion and avoid resorting to concessions and discounts, landlords can implement several strategies:
- Increase marketing/advertising spending to highlight the value of rentals.
- Enhance the tenant experience by improving responsiveness and addressing their needs promptly.
- Stay informed about local market demand and tailor properties accordingly.
- Adopt digital services platforms for streamlined operations and enhanced transparency.
- Offer incentives for lease renewals to foster tenant appreciation and loyalty.
- Conduct regular inspections and maintenance to ensure tenant comfort and satisfaction.
Weathering the Storm of Falling Rents
Ultimately, responding to changing market conditions is all part of the game of rental investing.
By prioritizing tenant satisfaction and making strategic business decisions, landlords can weather the storm of falling rent prices and emerge stronger on the other side.
Want more info on rental property investing in the Detroit area? Check out our blog for data, news, and local investor insights.