Who said rents never go down?

Question

When interest rates shot up, the market seized. It happened to office, multi-family and single family markets. Now that rates have come down a little, maybe there will be a little easing up on the downward number of sales. There is another issue that this is causing, rental rate pressure. Rental rates are coming down due to some excess inventory. Also, when landlords can not sell their home because no one can afford 7% interest with 3% interest rate prices, something has to happen.

One must realize that a 3% interest rate for a $400k mortgage will have a payment of  $1686 P&I only.

When that interest rate is 6%, to keep a payment close to under $1700 the mortgage is going to be about $283,000.

That is about 30% drop in price to stay at the same mortgage payment. If homeowners or investors are not willing to drop prices fast enough, what are they going to do, RENT. This causes more properties on the market for rent, further pressure on rental prices.

The result is that prices are going down. More landlords are offering incentives to keep their properties rented. This is happening across Texas and the Southeast, but I think it will happen across the nation. What do you think??

https://www.expressnews.com/business/real-estate/article/zil...

Theresa Harris · Answer

I agree with David-trends are dependent on locations.  Where I am, rents have gone up and there is a shortage of rentals.

David Krulac · Answer

As they say all real estate is local.  We have only invested in a few states, and there are something like 3,200 counties in the US.  Each one has different economies.  We have been sucesssful renting properties in the fastest growing counties in several states and have been doing it for decades.  We have never lowered rents, sometimes rents have not increased and stayed the same.  Since Covid rents have risen sharply. Some rents have gone up 40% or more over that period.  We are full, and currently have no vacancies.  We anticipate more vacanies on the horizon, but we do not anticipating lowering rents.  We did not lower rents in 2008, and or goal is the same now.

Jaron Walling · Answer

There is strong evidence of slowed consumer spending.   I think a good amount of STR and MTR investors are pivoting to long term rentals thus increasing the number of available units adding downward pressure on rent prices. The best markets have been saturated for years (Airbnb/STR got way to trendy) and locals tend to hate them so additional LTR units will be welcomed.

Some investors will cash-flow negatively, be upside down, or both but every REI strategy comes with risks. Can you pivot or sell for a profit is the difference.

Nathan Gesner · Answer

I network with hundreds of property managers around the country. Some of them are reducing rent rates and rentals are sitting on the market. My market is strong with little inventory and increasing rent rates.

In my market, the monthly rent payment on a 3bed/2bath is about 40% cheaper than the monthly mortgage. It doesn't make sense for someone to purchase when they can rent for so much cheaper.

What happens in the future? That depends on who runs the White House, whether China invades, whether Yellowstone blows up, and 10,000 other unknowns.

Who said rents never go down?

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