Do rents ever go down?
Most Popular Reply
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
8yRents can - and do - go down. However, you won't see 50% decreases in rent like you would sales prices. It's more likely you'll see a 5 - 10% decline over a period of time.
If you listen to some of the seasoned pros with decades of experience, they'll tell you rents are least likely to decline in the middle-income bracket. I live in Wyoming and we were impacted by the energy field layoffs of 2015. Rents were going crazy, everything was renting fast, and prices were going up for a couple years. Then the layoffs happened and we were stagnant for one year and then started to decline the next year. I had to reduce prices on about 10% of my rentals just to get them filled and even then it was tough.
This is why it's important to cash-flow on day one. I see many investors saying they are buying properties with no cash-flow or even a negative cash-flow because they predict the market will continue to grow and they'll eventually gain a cash-flow and build equity. All it takes is a 5% downturn and they can lose their shirts.
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32 Replies
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Sam Josh:
Jobs! When jobs dissapear, rents fall. I saw this first hand in Silicon Valley in 2001 and then again in 2008 to 2010.
Also, They can fall to zero if your location is impacted by natural disaster or if hard crime takes over the neighborhood. Has happened I am sure in areas like Detroit etc.
That said, I applaud the question because it does seem like people are investing as if rents will never fall.
I usually run my math by running what if scenarios of a 10 or 30% decline in rent and my ability to sustain in an environment.
places rents went to zero in the 08 crash PHX VEGAS parts of FLA parts of Atlanta Detroit and many other urban core areas.
Central CA inland empire.. Not all rents but enough that investors lost properties in record numbers.
rents in Portland held did not really go up or down.. but Commercial got hammered I remember coming back from my exile in the deed south and going to dinner one night at my favorite Chinese place and the strip mall was 80% dark... go today and its 100% full.. I had personal friend lose 2 shopping centers in Denver during those days... insurance company foreclosed.. simply not enough rent to cover debt service and he would have to cut 250 to 350k a year checks to keep them he did that two years and folded.. I suspect now its going great one of the centers was BRAND NEW CONSTRUCTION.. but the 600 homes that were suppose to go in next door got shelved.
in a 08 style melt down NOTHING is immune some areas trundle through other areas its mass extinction.
- 8yChris LopezPro MemberReal Estate Agent · Denver, CO · Member since 2015 · 1k+ posts · 858 votes
The chart below is Denver focused, but it's interesting data.
- 8yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
Our rentals in San Diego experienced no rent decline in the Great Recession. People increased occupancy by either moving in with family or friends so the demand went down but the banks were holding many foreclosed properties empty so the supply also diminished.
There is no way of knowing if the next large recession/depression will behave similarly so the safe investor should be in a position to cover extended periods of reduce rents and potentially long periods of vacancy.
We have been RE buy n hold investors since the mid- 1970s and have never experienced a significant rent decline in our market but in that time we have seen significant rent declines in other markets. Maybe the next crisis our market is the market with the significant rent decline.
Best to "Be prepared".
- 8yKevin PolitePro MemberInvestor · Decatur Atlanta, GA · Member since 2011 · 610 posts · 232 votes
atlanta Intown rents have been going up for a couple of years now. Most Intown areas don't have a lot of land so you're SFR is somewhat protected from a huge apartment complex coming in suburban areas. Also you can b, c and d within a 1 mike radius and all can do well, especially if the c and d are getting bought up for flips like in Westend, East Atlant, East Lake Andy parts of Decatur
- Rental Property Investor · Seattle, WA · Member since 2015 · 21 posts · 2 votes8y
Originally posted by @Jay Hinrichs:
Originally posted by @Sam Josh:
Jobs! When jobs dissapear, rents fall. I saw this first hand in Silicon Valley in 2001 and then again in 2008 to 2010.
Also, They can fall to zero if your location is impacted by natural disaster or if hard crime takes over the neighborhood. Has happened I am sure in areas like Detroit etc.
That said, I applaud the question because it does seem like people are investing as if rents will never fall.
I usually run my math by running what if scenarios of a 10 or 30% decline in rent and my ability to sustain in an environment.
places rents went to zero in the 08 crash PHX VEGAS parts of FLA parts of Atlanta Detroit and many other urban core areas.
Central CA inland empire.. Not all rents but enough that investors lost properties in record numbers.
rents in Portland held did not really go up or down.. but Commercial got hammered I remember coming back from my exile in the deed south and going to dinner one night at my favorite Chinese place and the strip mall was 80% dark... go today and its 100% full.. I had personal friend lose 2 shopping centers in Denver during those days... insurance company foreclosed.. simply not enough rent to cover debt service and he would have to cut 250 to 350k a year checks to keep them he did that two years and folded.. I suspect now its going great one of the centers was BRAND NEW CONSTRUCTION.. but the 600 homes that were suppose to go in next door got shelved.
in a 08 style melt down NOTHING is immune some areas trundle through other areas its mass extinction.
Mind to share the name of that Chinese Restaurant? :)
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Dan Z.:
Originally posted by @Jay Hinrichs:
Originally posted by @Sam Josh:
Jobs! When jobs dissapear, rents fall. I saw this first hand in Silicon Valley in 2001 and then again in 2008 to 2010.
Also, They can fall to zero if your location is impacted by natural disaster or if hard crime takes over the neighborhood. Has happened I am sure in areas like Detroit etc.
That said, I applaud the question because it does seem like people are investing as if rents will never fall.
I usually run my math by running what if scenarios of a 10 or 30% decline in rent and my ability to sustain in an environment.
places rents went to zero in the 08 crash PHX VEGAS parts of FLA parts of Atlanta Detroit and many other urban core areas.
Central CA inland empire.. Not all rents but enough that investors lost properties in record numbers.
rents in Portland held did not really go up or down.. but Commercial got hammered I remember coming back from my exile in the deed south and going to dinner one night at my favorite Chinese place and the strip mall was 80% dark... go today and its 100% full.. I had personal friend lose 2 shopping centers in Denver during those days... insurance company foreclosed.. simply not enough rent to cover debt service and he would have to cut 250 to 350k a year checks to keep them he did that two years and folded.. I suspect now its going great one of the centers was BRAND NEW CONSTRUCTION.. but the 600 homes that were suppose to go in next door got shelved.
in a 08 style melt down NOTHING is immune some areas trundle through other areas its mass extinction.
Mind to share the name of that Chinese Restaurant? :)
Jin Wah
- Rental Property Investor · Seattle, WA · Member since 2015 · 21 posts · 2 votes8y
Originally posted by @Jay Hinrichs:
Originally posted by @Dan Z.:
Originally posted by @Jay Hinrichs:
Originally posted by @Sam Josh:
Jobs! When jobs dissapear, rents fall. I saw this first hand in Silicon Valley in 2001 and then again in 2008 to 2010.
Also, They can fall to zero if your location is impacted by natural disaster or if hard crime takes over the neighborhood. Has happened I am sure in areas like Detroit etc.
That said, I applaud the question because it does seem like people are investing as if rents will never fall.
I usually run my math by running what if scenarios of a 10 or 30% decline in rent and my ability to sustain in an environment.
places rents went to zero in the 08 crash PHX VEGAS parts of FLA parts of Atlanta Detroit and many other urban core areas.
Central CA inland empire.. Not all rents but enough that investors lost properties in record numbers.
rents in Portland held did not really go up or down.. but Commercial got hammered I remember coming back from my exile in the deed south and going to dinner one night at my favorite Chinese place and the strip mall was 80% dark... go today and its 100% full.. I had personal friend lose 2 shopping centers in Denver during those days... insurance company foreclosed.. simply not enough rent to cover debt service and he would have to cut 250 to 350k a year checks to keep them he did that two years and folded.. I suspect now its going great one of the centers was BRAND NEW CONSTRUCTION.. but the 600 homes that were suppose to go in next door got shelved.
in a 08 style melt down NOTHING is immune some areas trundle through other areas its mass extinction.
Mind to share the name of that Chinese Restaurant? :)
Jin Wah
Haha we go to that plaza almost every week Jay... My GF loves their Dim Sum, and my favorite hot pot place is also there, few shops away... I notice there're couple Turn Overs but hard to believe it was 80% dark 10 years ago!
Sorry guys to divert....
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