Rentals during the past recession?

[Christine Sommer]

We were curious if anyone was a landlord during the 2008 market crash and wanted to hear what impact it had on their rental properties (vacancy rates, rental rates, etc.)

We know that this could potentially be a great time to buy.  However we wanted to make sure that if we purchased a property, we could fill the rental with tenants in a reasonable amount of time?

Any insight would be greatly appreciated. 

[Evelio Suarez]

We purchased a a mid-sized apartment complex in 2014 and were severely hurt by the 2008 great recession. Our occupancy dropped from a normal vacancy level of 4-5% down to 15-18%. To make matters worse, we also had to lower rents to keep existing tenants and attract new ones. As a result, our cash flow dropped precipitously and operated in the red on many months until about 2010. Fortunately, we had sufficient personal resources to feed cash into the property as needed and we were able to weather the storm. It took a very long time but we were finally able to sell that property for a nice profit in 2017.

One important distinction is that the cause of the last recession was the real estate market bubble bursting which caused prices to tumble. This resulted in additional challenges to landlords from unexpected places. For instance, we suddenly faced competition from a shadow market of cheap rent condos and rental homes which had previously been for sale but suddenly became rental properties. Some distressed and unscrupulous owners who were desperate and in the midst of losing their properties started renting dirt cheap in order to generate any cash they could before the bank foreclosed and repossessed. Also, in our area there was an unusual phenomenon where people started living with family members so that also caused a decline in the number of renters. So we had a trifecta of unemployment, decline in rent rates, and low demand all at once.

Hopefully, things will be a bit different this time. Since this recession is not being driven by an economic downturn due to the Covid-19 corona virus, I think the main threat to landlords is tenants falling behind on rent due to temporary job losses. If the health crisis is short-lived (say 3 to 6 months), the economy should start to rebound in a reasonably short time. Yes, we need to have sufficient resources to make through a few ugly months of lower rental income but not the extra challenges we faced last time. Of course, if the crisis extends for 6 months to a year, then the ripple effect could cause real estate prices to tumble and we might see a "light" version of the last real estate crisis. Properties that are not performing well might fall into foreclosure but I really don't think we will see the full blown real estate crash that we experienced in 2008.

I'm trying to remain positive. I sure hope my crystal ball is accurate!