Rents - Flat or Declining
I was listening to a podcast this morning discussing how rent growth has largely flattened in many markets with labor market softness and affordability playing a role. Additionally, it may continue to be flat in many markets for the unforeseeable future.
For those actively buying rentals today,
- Are you underwriting with flat rents for the next 12-24 months?
- Has this changed your acquisition criteria at all?
I think this is a good reminder that deals should work based on today's numbers (and possibly be conservative for lower rents) not future rent increases that may or may not happen.
Curious what everyone else is seeing in their markets.
Most Popular Reply
@Amber Stout flat is the only defensible base case right now, and I'd go one step further: underwrite the in-place rent, not the asking rent. Asking rents are a lagging indicator because landlords cut concessions before they cut the listed number. A market can show "flat" asking rents while effective rents are already down 3 to 5 percent once you count a free month and reduced deposits. Days on market and concession activity on comparable listings tell you more than the Zillow trend line.
Practically, that changes underwriting in three ways. The deal has to clear your cash flow bar at today's actual collected rents, with zero growth for year one and two. Vacancy and turnover assumptions deserve more room than usual, since flat markets usually mean tenants have options and re-leasing takes longer. And any value-add premium (the "it'll rent for $200 more after the rehab" line) needs a live comp behind it, not a pro forma.
The acquisition criteria shift is that rent growth stops being a return driver and debt structure starts mattering more. If a deal only works with 3 percent annual rent bumps, it doesn't work.
Are you seeing concessions show up in the Tampa listings before the asking rents move, or is your market still holding the line on both?