If market prices crash do rent prices also crash?

Buying & Selling Real Estate
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If market prices crash do rent prices also crash?

Jun Zao
Chicago, IL · Member since 2017 · 31 posts · 2 votes

Suppose something like the 2007 housing bubble burst again, if I am invested in a cash flow property rather than a speculative appreciation property do I have anything to worry about? I mean, would I have to lower rent as the prices fall? 

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Joseph M.
Flipper/Rehabber · Los Angeles, CA · Member since 2009 · 1k+ posts · 732 votes
8y
It depends on the market , in L.A for example rents went up during the housing crash . Many people lost their homes and mortgages were harder to get but they still needed a place to live so more people rented and demand for rentals was strong . You should look at historical rent prices for the area you are looking to invest in . Rents can definitely go down but generally not as volatile as property prices can be .
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  • Joseph M.
    Flipper/Rehabber · Los Angeles, CA · Member since 2009 · 1k+ posts · 732 votes
    8y
    It depends on the market , in L.A for example rents went up during the housing crash . Many people lost their homes and mortgages were harder to get but they still needed a place to live so more people rented and demand for rentals was strong . You should look at historical rent prices for the area you are looking to invest in . Rents can definitely go down but generally not as volatile as property prices can be .
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  • Sam Shueh
    Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
    8y

    Tied to unemployment. If it is blue collar profession losing jobs taking a lower rent is better than not getting a rent. Tenants do fight back and asking landlord to charge less or go elsewhere.

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  • Jun Zao
    OP
    Chicago, IL · Member since 2017 · 31 posts · 2 votes
    8y
    Originally posted by @Joseph M.:

    It depends on the market , in L.A for example rents went up during the housing crash . Many people lost their homes and mortgages were harder to get but they still needed a place to live so more people rented and demand for rentals was strong .

    You should look at historical rent prices for the area you are looking to invest in .

    Rents can definitely go down but generally not as volatile as property prices can be .

    Where do I go to find historical rent data for a specific neighborhood of Chicago?

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  • Kristina Heimstaedt
    Real Estate Agent · Newport Beach, CA · Member since 2017 · 259 posts · 293 votes
    8y

    Bill McBride's Blog is the best. He oftentimes has price to rent ratio graphs. He's also a great resource for general market information and had the data to predict the housing bubble accurately. Numbers don't lie and Bill has lots of numbers.

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  • Elbert D.
    Real Estate Entrepreneur / Investor · Chicago, IL · Member since 2016 · 688 posts · 367 votes
    8y

    @Jun Zao well for rentals, you should look at cash flow it should be your number 1 stat to look at. Appreciation is the cherry on too of the cake. What cash on cash return are you getting with this buy and hold? Are you planning on acquiring more properties in Chicago?

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  • Joseph M.
    Flipper/Rehabber · Los Angeles, CA · Member since 2009 · 1k+ posts · 732 votes
    8y

    @Jun Zao , not sure for specific neighborhoods or zip codes.

    If you take a look at this site 

    http://www.deptofnumbers.com/rent/illinois/chicago...

    You'll see median and average rents in Chicago (in general) did go down a bit during the crash..but doesn't look to significant. 

    You should account for the possibility that there might be a rent decrease. Vacancy rates are also important too. 

    If it ends up taking you a long time to rent a unit then that will cut into your cash flow as well. 


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  • Russell BrazilBusiness Member
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    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    8y

    in DC rents also went up during the housing collapse.  You had an unusually high number of property owners who in a very short time became renters.  So simple supply and demand economics took place, with higher demand for rentals, rents went up.

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  • Lumi Ispas
    Real Estate Consultant · Chicago, IL · Member since 2014 · 720 posts · 439 votes
    8y

    @Jun Zao , as everyone mentioned earlier, usually the demand and income level in the area will determine if the rents go up or down. Chicago is known for its strong job market. In the past, rents went up almost all over the city. I would exercise caution in buying in areas that are occupied mostly by tenants, as those usually are the areas that could lose a higher % of tenants and have the possibility of lowering rents.

    The last downturn has displaced a lot of people through a high amount of landlords going through foreclosure. We don't expect such a market to come around again, only a slow down, which is normal in the real estate market. 

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