How much did your rents drop during market crash?

Question

Hi,

I was not investing during the market crash in 2008. I have been able to find some information on how much property values dropped in different areas of the country. I have had a harder time finding out how much rents dropped during the rough years for investors...

I was hoping some experienced buy and hold investors would give me some real life examples of how the crash affected (or hopefully didn't affect) their monthly rents and cash flow.

Thanks!

Bill S. · Answer

@Taylor Green  Here are a couple of observations. Generally recessions are good for landlords. Less people buy homes which means more renters. There are a couple of things to note related to that.

1) Rent rate is not the only thing that suffers from a down turn in the market.

a) Higher vacancies increase costs. What used to rent in 2 weeks now takes 4-6 weeks to rent.

b) More evictions and tougher to get people out meaning evictions take longer because people have fewer options you have to carry all the way to where you move their stuff to the curb under the watchful eye of the sheriff.

c) You have to give more concessions to get tenants to look at your place. Give aways like TVs and free rent and low security deposits which mean more costs on your bottom line.

2) The last downturn in the rental market was actually the last housing boom. Everyone was giving away money and while the economy was booming all the good tenants were buying homes. Why rent when for first month's rent and security deposit you could get a house that had a payment lower than rent. Never mind that it was interest only at a low introductory rate and that you income was stated. Not all fit this bill but you get the picture.

3) The recession did hurt some landlords severely. That was in markets that lost a lot of jobs. In those areas, while there were more and more people needing rentals (due to foreclosures) no one had any money. They doubled up with family and those that had a place did not move due to the cost. Even if they saw a nicer place that was cheaper they wouldn't move because their had no confidence they would have a job. Their work hours were also cut so they were living on the ragged edge and had no funds to even rent a truck to move with. Once you lost a tenant you couldn't find a replacement no mater how cheap rent was (see the comment above about vacancy rates).

4)  Keep in mind that all real estate is local so the impacts of a recession will be different in California from what it is Arizona or Colorado. While the recession was nation wide the impact and depth varied significantly across the fruited plain. In addition, some areas experience their own economic cycles that may or may not follow national trends. Sometimes those national trends amplify local cycles and sometimes they attenuate them.

5) The bottom line is rental rates of return cycle up and down just like the rest of the economy (perhaps not in unison but maybe so as well). You have to make sure you have room in your approach for a down turn, whatever that looks like.

Account Closed · Answer

In NJ I was able to increase my rents during the down turn (still am). Plenty of people making plenty of money but are unwilling to save for a down payment as they could if they wanted to. They would rather drive a BMW, visit coffee houses and meander into night time drinkeries to be with the "in" crowd instead of saving their money for a down payment. Fine by me. :-) I love Bigger Pockets, spend my time here for free to educate myself and it is again free !!!

Taylor Green · Answer

@Jon Klaus

Thanks Jon for the response.

That is a good point that I haven't really considered before.

I am trying to get comfortable with owning multiple leveraged properties. Trying to protect myself (like most people) in case of another tough market.

Do you agree with the general opinion that if you buy a solid property, in a solid location, that cash flows at least $100+ a month and keep 6 months rent in reserve for each property you own, your business would survive another crash?

Thanks!

Jon Klaus · Answer

Remember that in 2008-2011, millions of homeowners became renters.  Rental demand actually grew in the worst part of the recession.

Jon Klaus · Answer

How much can you buy them for?

Franklin Romine · Answer

a few years ago $45-70k... Now $60-100k but in less desirable areas for resale

Franklin Romine · Answer

Speaking for my area which are the Fresno and Tulare counties  if I could buy 100 homes for rentals they would be around 1,000 sqft, 1-2 car garage, 2-3 bedroom,  1 bath and rent for $800-1000 per month.  The smaller homes  costless to turn over and the rental market is stable.

Jon Klaus · Answer

There are no guarantees. Leverage generally increases risk. That said, keep building your balance sheet as well as your income. Buy in an area with a good economy, and population/job growth, in good school districts.  Have multiple exit options. I'd feel pretty good about my risk with 6 months reserves and all the above.

Franklin Romine · Answer

Rents for me in the Central Valley went up.  The renter demand for rentals that rent for less than $1'000 per month is strong.  My 5 year vacancy rate is around 1.5%.

How much did your rents drop during market crash?

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