Highest Drop in Rent You've Seen??

Question

Whats the most significant drop in rent you've ever seen when the market changes? What benchmark above break even do you typically use to give yourself a buffer on your buy and hold SFH or small multi family deals? (In other words, preparing to be able to breakeven if there is a 10% drop in rent? 20% drop in rent? or more?

Jay Hinrichs · Answer

Well during the GFC some markets rents dropped 100%  IE total vacancy and stayed that way for years.

think PHX   VEGAS  parts of ATL  parts of FLA  inland empire of CA ..

in other markets 10 to 20% was common..

but as we sit here today I don't think many are predicting such a pending economic failure as 07 to 2011.

and again it was regional.. I think some risk we are seeing in the market place and I think we are already seeing some posts that say hey I cant get my house rented its been on the market for 60 days..

I just wonder how supply demand is working were you have home after home that was owner occ and has been thrown into the turn key world or just local investor rental operator.. so you start to have an over supply. and then you have competition for renters.. plus home ownership.. as renters shed debt student loans get married they usually want to step into home ownership..  So its a balance. that's for sure. but end of the day supply demand always rules.

Joe Splitrock · Answer

I have never had a rent drop up until this month. I just dropped a property $75 and it is only because of time of the year. There is too many houses available and I just need someone in fast to avoid vacancy. Other people let their properties sit three months to hold out for more money. I like to turn and burn. Is it better to lose $4000 now or $1000 over the next 12 months.

Jay Hinrichs · Answer

Anthony  NEW CONSTRUCTION STOPPED DEAD in its tracks..  for instance just in portlandia since I know those numbers well.

from about 1990 to 2007 we pulled on average 12k new construction permits a year 80% SFR 20% MF in 08 we pulled 700 total.

next year 1200 next year 1600 etc and we are only back to about 5k.  so HUGE pent up demand that is why every single home I build in Oregon save a few are sold before they are completed lack of inventory. and you see this all over the US .. were it says sales of new homes are down etc. that because of lack of inventory not because of lack of buyers or weak economy.

So what happened is that all these sub trades dried up and went away.. and in the south was very heavy to Hispanic labor they went back to Mexico or did other things.. but they left.  so when you look at those markets I posted about those were some of the most robust new construction markets in the country..  I had clients with 4 plex's in PHX that went totally vacant and stayed that way for longer than they could debt service them and they walked..  apartment complex's in Vegas 30 to 40% vacant lost to the bank. you have a new crop now that picked up the crumbs and things are back to going pretty well.   But that answers your question.  Plus these markets other than ATL were not heavy to sec 8 these are people that actually get no assistance so when work dried up they left.

Will Gaston · Answer

Rents in my area can drop considerably but that's mostly because it's a student rental market. I know of many properties that cannot be filled at even 50% of the previous rent if it's being advertised outside of the summer time.  Timing is incredibly crucial in student markets (and vacation rentals.)

JD Martin · Answer

In a situation like that, a lot of houses that would have been sold go on the market as rentals. That bloats the rental supply market which drives down price. If you were a home flipper and could afford to hold and rent out the unit you had until times got better, you could inflict some pain on the people that had to have renters no matter what.

Russell Brazil · Answer

I had a $1250 to $1200 drop once. But im in a pretty resilient market. Rents increased dramatically here during the housing collapse

Anthony Wick · Answer

In those markets that dropped significantly, why is that? Obviously many people were foreclosed upon. I would think that would precipitate a rise in renters. Where did these people go? Relocate? Move in with family? Most everybody has to live somewhere.

Aaron Poling · Answer

I had a conversation about this yesterday with a client of mine that owns several apartment buildings and a portfolio of single family rentals. During the boom time he had rental units priced at 1BR -700, 2BR - 800, 3BR - 900. When the market went from great to worst they had to drop each unit by 100 each. So in their case it was a little more than 10%.

Hope this helps, Thanks Aaron

Catherine Emert · Answer

In Central Oregon we see huge changes. In the downturn of our market a 3 bedroom home would struggle to rent $800-900 now you’re lucky to find one for under $1400. Some studios in our area go for over $1000.

Highest Drop in Rent You've Seen??

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