As a rental property owner in Long Beach, CA, you may wonder how a recession could affect your rental property business. After all, economic declines can lead to job loss and wage stagnation, which could, in turn, lead to difficulties for tenants in meeting their monthly rent payments.
We’ll look at what a recession is, how it could impact the Southern California rental market, and how you can safeguard your rental property income during these uncertain times.
Recently, there have been concerns about the U.S. economy heading for a recession. Several factors, including trade disputes, slowing global economic growth, and rising interest rates, drive these worries.
How Could a Recession Impact the 2023 Rental Market?
There are several ways in which a recession could impact the Long Beach rental market. First and foremost, an economic decline can lead to job losses and wage stagnation making it challenging for tenants to keep up with their monthly rent payments.
Additionally, declining markets often lead to an increase in foreclosures and evictions, creating an oversupply of rental units on the market, which could put downward pressure on rents.
Finally, during economic uncertainty, many renters may choose to move in with family or roommates rather than sign a new lease.
With everything happening, it’s possible that your rental property business and income may suffer a little. However, real estate investors and rental property owners can take steps to safeguard their cash flow.
Tips For Protecting Your Rental Business During a Recession
An economic downturn can present challenges to rental property owners. Property managers and landlords must be proactive to protect their investments.
- Diversify Your Portfolio Income Streams: During a recession, it’s essential to have multiple income streams so that you’re not solely reliant on tenant rent payments. Review your budget for areas where you can cut costs or generate additional revenue from other sources.
- Review Your Expenses: Take a close look at your expenses and see if there are any areas where you can cut back. Tips for staying in the black may include deferring non-essential repairs, renegotiating vendor contracts, or subletting vacant units.
- Offer Incentives: During a downturn, you may need to offer incentives to attract and retain high-quality tenants. For example, you could offer one month rent-free or a discounted rate for signing a long-term lease.
- Be Flexible with Rent Payments: If your tenants struggle to make rent payments, be flexible and work with them. You may need to offer a payment plan or allow them to pay their rent late. That’s if having a vacancy or going through an eviction are the only other options.
- Communicate with Your Tenants: Keep your tenants informed about any changes or updates that could affect them. For example, if you’re planning on making any changes to the property or increasing rent prices. By communicating openly and transparently, you can build trust with your tenants.
- Stay up to date on Industry Trends: Keeping tabs on industry trends will help you anticipate changes in the rental market so that you can adjust your strategy accordingly. Industry trends include tracking changes in average rents and changes in employment and wages in your area. You can find invaluable data online from the Bureau of Labor Statistics or the National Bureau of Economic Research.
- Have contingency plans in place: While no one wants to think about worst-case scenarios, it’s essential to have contingency plans in place in case things turn for the worse. This could include having cash reserves set aside so you can cover expenses because rent payments are late.
Being proactive and preparing for a recession will help landlords weather the storm. You can protect your rental business from the negative impacts of a downturn. Attracting new tenants and retaining current tenants who may be struggling financially can help landlords stay afloat during challenging times.
What to Do If You Need to Lower Your Rent During a Recession
Negative growth can be a challenging time for landlords and rental property owners. With so many people working fewer hours or out of work, it can be challenging to keep your rental unit filled. Here are a few tips on what you can do to lower your rent during an economic slump and keep your rental property afloat.
Rent specials – One way to attract tenants during hard times is by offering rent specials. High-quality tenants are attracted to a waived application fee, discounted first month’s rent, or even a free month’s rent. By providing incentives, you’ll be more likely to attract attention from potential tenants looking to save money.
Lowering rents – Lowering your rents, even by just a little bit, could make all the difference in keeping your rental unit occupied during a recession. Every little bit counts when people tighten their belts and watch their pennies.
Offering uncommon leases – Another way to make your rental property more appealing during a negative growth is by providing customized leases. These special leases could be a six-month lease instead of the traditional one-year lease or a month-to-month lease. Being flexible with your lease terms will make your rental property more attractive to those worried about their employment during a recession.
By being flexible with your rents, you’re showing your tenants that you’re responsive to their needs and willing to strike a deal—an important consideration for anyone looking for a new place to live.
Lowering Rents During a Recession: What’s in It for Landlords?
There are quite a few benefits for landlords who lower their rents during a recession. In addition to helping those struggling to make ends meet, reducing rents can also lead to increased occupancy rates and happy tenants who are more likely to renew their leases. Here’s a closer look at how landlords can benefit from lowering rents during tough economic times.
Increased Occupancy Rates
One of the most obvious benefits of lowering rents in Long Beach, CA, during a recession is that it can lead to increased occupancy rates. When money is tight, and unemployment is high, people are more likely to move into less expensive housing options, which means that your rental units are more likely to fill up.
Longer Leases and Happier Tenants
In addition to increased occupancy rates, another benefit of lowered rents is that tenants are more likely to renew their leases. The reduced rent signals to tenants that you’re willing to communicate and collaborate, which can foster goodwill, encouraging them to stick around for the long haul. And, of course, happy tenants are more likely to take care of your property and abide by the terms of their lease agreement.
Improved Cash Flow
Though it may seem counterintuitive, lowering your rents can improve and maximize your cash flow. That’s because when you have higher vacancy rates, you have periods when you’re not collecting any rent. By keeping your units filled with tenants paying lower rents, you can ensure a steadier income stream, even if it is less than what you usually collect. And in an economic downswing, every little bit helps.
While lowering rents may not be desirable from a financial standpoint, there are several compelling reasons why it may be the best course of action during a decline. By attracting and retaining tenants, avoiding vacancies, and improving your relationship with tenants, lowering rents can help you weather the economic downturn until things eventually improve.
A recession can be challenging for landlords and rental property owners. However, by staying up to date on Southern California housing and industry trends, diversifying your income streams, reviewing your insurance coverage, and having contingency plans, you can help protect your rental income during these uncertain times.
The Advantages of Having Property Managers During a Recession
While some landlords may choose to go it alone, working with property managers has several advantages—especially during a recession. First and foremost, property managers can help you stay up to date on industry trends to make the best evaluations for your Long Beach, CA, rental property.
In addition, they can take on many day-to-day tasks associated with running a rental property, giving real estate investors more time to focus on the bigger picture. And, if you need to lower your rent, they can help you determine the best way to do so while maintaining a healthy bottom line.
Finally, property managers bring a wealth of experience and knowledge. They are experts in the rental property industry and can help you navigate the challenges of being a landlord—recession or not. If you’re looking for help to weather the storm in Southern California, CMC Realty & Property Management property managers are an excellent option.
Our expert Long Beach property managers specialize in optimizing rental income and minimizing vacancy rates. We’ll develop a customized strategy that meets your unique needs so that you can protect your investment—and your peace of mind—during a recession.
For more information about our 24+ years of property management success, contact us today. We’d be happy to share our local market expertise with you and provide comprehensive solutions.