If rent goes up, can it go down?

Question

At the time of the lease rent was high. Now rent and prices are correcting.  Current lease is 1600mo 2 year.  The tenant's economic situation has turned, still making rent but its beans and rice tough for them, and slipping on due dates has happened. So, potential for not paying or falling behind is HIGH. Also, the market for rents is not what was. Potential new tenant would be around 1200-1300. I do have some ideas of what to do, just not sure of the tradition way of going about the situation. So, my question is what some ideas are, in dealing with this situation, or type of. Thank you for the collaboration and all insight.

Mike Dymski · Answer

I'm with @Bill B.  A 20+% rent decrease is massive relative to the rest of the country.  I'd try to sell while the lease is $1,600 before it resets lower and drives the properly value way down.  Buyers should do their diligence and value the property based on market rents but not everyone does.

Bill B. · Answer

Is it too late to sell? If rents dropped 25% in 1 year what’s your plan if they drop another 25% next year? The country is full of markets where rents are up or down 0-5%. But it seems like you’re in the worst market in the country.

Are you guessing at rents? Have you talked to a PM? Reach out and ask how much rent they would charge and how much you would net. You might find out they they can’t get $1,400, $1,500, or even $1,600. With 8% fee you’d net $1,288 - $1,472. You earn more while doing much less work.

Joseph Mclellan · Answer

thanks Ken I didn’t know if that was a thing in rental world. 3 years ago the market was for the landlord. I would rather have some one in that unit then not collecting

Bill B. I am not looking to sell don’t need to or want to. I am doin my best to understand the market and NOT guess. I did have a vacancy in the unit next door. Unit is smaller. Rent was 1350, tenants had to move due to needing more space and no stairs. But in order for me to get interest on that I dropped rent to 1195. Getting in touch with a PM was how I found that out. I also enjoy managing and maintenance (for now right haha).

Thanks again fellas

Ken M. · Answer

When you sell on the MLS, expect to spend money to get it ready, realtor fees could be 5%, concessions could be 2% closing costs could be $1,500, you lose tax write offs and have to recapture previous write offs back onto your taxes and it's likely to be vacant for a while while you try to sell or to have problems getting the tenant to leave. In most jurisdictions, a buyer as to follow an existing rental agreement. Add it up and divide by hassle factor.

That's actually why we teach selling in creative ways that minimize those expenses. Things like Lease/Options, Wraps, Seller financing, etc.

David Krulac · Answer

@Joseph Mclellan  We're in the same market and as of yet haven't lowered any rent. Last week we actually raised rent on an existing tenant renewing.  We watch the HUD Fair Market rent for the area, and that is still trending up, though in some past years there was a decline in the Fair Market Rent, which is the Median Rent with 50% above and 50% below that figure.  for the Nashville area the HUD rent is broken down by Zip Code, so there may be some areas where rents declined, but for the Zip Codes where we are, there has not been a decline this year.  The figures gathered by HUD are from a survey of current rental owner including apartment complexes.  We have participated in those surveys in past years.  The FMR figures are also used for the HUD Section 8 program.

Theresa Harris · Answer

It is up to you.  You could decrease rent slightly, but are they likely to move to find a cheaper place (moving costs time and money).  Also depends on why their finances have changed-did someone lose a job and are they actively looking for a new one?

If rent goes up, can it go down?

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