Published by ThinkRealty | September 13, 2021
Investors who plan ahead and implement some basic strategies during periods of economic abundance have a better chance of their rental properties surviving even a prolonged recession.
The world of real estate investing is exciting but incredibly unpredictable. You might be riding the high of favorable returns one day only to stare down a looming recession the next. Fortunately, there are many ways to protect your investment when the financial picture is not so rosy.
Sometimes the best you can hope for during a recession is to maintain your position. This means focusing on cutting costs, keeping current tenants happy, and being flexible so you can reduce vacancy rates. If you have capital to spend, picking up other rental properties during a recession can be a good bet. But if your investment goals include long-term, steady growth, continue to focus on stabilizing your current portfolio.
Here are 12 ways to adapt your rental property during a recession.
1. Lower Your Rates
It may be counterintuitive to collect less money during a recession, but consider this: If you are feeling the pinch of a market downturn, so are your tenants. They may be inclined to shift to a lower-priced rental during this time to save money. Reducing your rental rates, even for an introductory term, makes your rental property more attractive to tenants. Even so, it’s still important to ensure your rental rates continue to cover expenses.
2. Be Flexible
If your current tenants are struggling to make payments, consider flexible payment plans to ease the pinch. Allow partial payments for a period of months or provide a discount for early or multi-month payments.
3. Reduce Expenses
When a recession is on the horizon, put off optional upgrades and improvements. Focus on what’s absolutely necessary. If you haven’t already, take a look at your monthly expenses for the past three months and determine what costs you can reduce or eliminate. Then bank that cash for emergencies.
4. Go Short
Potential tenants may hesitate to sign long-term leases when they aren’t sure of their financial future. Offer short- or medium-term leases with the potential to convert to a longer lease to appeal to these tenants.
5. Go Long
On the other hand, consider offering longer leases with more favorable terms. You might reduce the rent for the first six months, returning it to a market rate over a two-year period.
