Rents in a down market

[Eric Bilderback]

Do rents generally go down in an economic downturn?  If you are underwriting a property do you consider that the income may actually decrease (if so by how much) or do you think worst case scenario rents are stagnate?

[Joe Scaparra]

@Eric Bilderback You ask a very good question and of course the answer is it depends. Your answer to this question has many factors that will contribute to the real results.  Let me answer from my point of view and factors that I believe that will impact the results of rents in a downturn.  

I live in Austin, TX and I have been acquiring duplexes as far back as 2002.  Even in Texas we had a bit of a real estate recession in 2008-2010.  However, my rents never went down, and in fact they went up.  Why?  Texas is a net increase in populations then and now.  My rents at the time were below $1000 per month.  If rents are below $1200/month you will have an over abundance of renters chasing rents below @1200.  People who were in housing costing more are at higher risk during a turnover to find lower rents or lower cost mortgages.  So in reality, a downturn might increase your pool of potential renters.  So, if your community is growing in population, your market is underserved and you are maintaining nice properties with rents below $1200 you probably have little to worry about.  If the recession is long and deep you may realize some pressures to lower rents but if that happens then I'm not sure where you could invest that would survive that type of recession.  My properties are duplexes that gives me advantage over apartment living, and better cash flow than SFHs which give me a better opportunity to ride out any downturn.  Lastly, if your able to buy using the 1% rule you have enough built in positive cash flow that will enable to ride out the downturn.