What happens to rents during a recession?

[John Paul Whaley]

I am a new investor in the DC area trying to get my investing career started with a rental property (or perhaps a BRRRR). Whether you are a seasoned or newbie investor, I'm sure that a potential recession is at very least in the back of your mind when looking for your next acquisition.

My question is two fold:

1. What happens to rents during a recession? It would make sense that as homeownership numbers fall, the demand for rental properties would increase. However, wouldn’t it also make sense to say that as unemployment rises in a recession, supply of rentals also increases (which would even out the increased rental demand)?

2. What are some of the most effective ways to recession-proof an investment property?

[Ashley Hamilton]

Hello,

These are great strategies, I prefer to invest in area's where I can do cash deal and not have a massive mortgage. Here in Detroit, You can purchase a property for under $30k and rent it out for between $700-$900/month. So you'll have very low cash invested and if there happen to be a recession, you wouldn't have a mortgage payment, so you can just lower the rent. For example in a high market your house rent for $800/month, then in a recession your tenants of 5 years have to move because they lost their job, you could offer them to stay at a reduced amount of rent say $400/month until they get back on their feet. Since you don't have a mortgage payment your only expenses would be taxes, insurance, and maintenance. For small repairs like broke door knob, or leaky faucet, you could have the tenants fix them themselves since your already reducing the rent and you can appeal the county to lower your taxes because the value has gone down. If you had a mortgage you wouldn't be able to lower the rent because you'll have to make a mortgage payment and wouldn't want to have your expenses higher than you income, so you'll be forced to find another tenant. So that my friend is a recession proof investment. Please check out my podcast episode #331 for more info about Detroit.