What causes rental prices to tank

Question

I'm newer to landlording and I'm curious on when/how/why there is a correction or drop of rental prices.  We are in a sweet time I feel since it seems as if rental prices will only go up from here, for numerous reasons.  Were there historical cases where landlords across the map had to drop their rental prices?

Account Closed · Answer

Rents are based on the "Rental Market" rates at that time, just as houses for sale are based on the "Market Value" at the time.

When selling a  house the price is based on whether people are moving in or out of the area.  If they are moving out, the price of houses being sold will tank.  If there is an influx of incoming people due to new jobs in town, then the prices will increase.

The same theory is based on rents.    Therefore, don't buy a house in a neighborhood with low rents and think by upgrading your rental home is going to guarantee you top rents.  It just ain't going to happen!  Rents are based on the "Market Rental Rates" in your area at this time.

Curb appeal also has a bearing on how much rent you can get.  If you don't keep your property up, and the landlord down the street does, they can get more rent than you.

Try to invest in several homes on a block to maintain the tenant pool and the community.  Plus it's easier to keep track of your rentals if you own several in the same area.

Nancy Neville

Max James · Answer

I love the idea of housing packages, separating yourself from the norm. I'm working on leads that include packages such as options to have an included AC unit, portable dishwasher and porch swings.

Al Williamson · Answer

Hi @Max James

I always keep an eye on unemployment rates. I've found that rents go up when unemployment goes down. That rule of thumb as served me well.

But, please keep in mind that you're not limited by the amount of value you can create. Skip market limitations - create a housing package that solves a niche client's problem.

You can charge much higher rents than Craigslist suggests.

Best to you.

Max James · Answer

Thanks@Nancy Neville ! I agree with your points for sure.

So you feel as though it's really just a sub-market by sub-market type of thing.  Don't buy a rental in an area that is in decline.  Try to focus on areas in up-and-coming neighborhoods.

I don't believe rental markets are impacted by the SF housing market.  For example, when the housing bubble bursts, rental prices don't fluctuate.  If anything, they might go up since less people can get home loans.  Agree?