Real Estate Investor · Around · Member since 2017 · 28 posts · 9 votes
Hey BP!
I don't want to go speculating of a recession happening (if, when, how etc), but the question of what kind of rentals are better for hard times came to my mind while I was looking at different types of deals around the mid-west.
Deal 1: duplex in a decent hood (B-/C+) that averages rents around 650$ / month / door (cost of 110k)
Deal 2: 4plex in a good hood (B+) that averages 1100$ / month / door (cost of 380k)
Lets say you are faced with this scenario and could go for only 1 out of the two. Which one would you pick?
My reasoning (flawed as it may be) is this:
Deal 1: lower rent = higher tenant pool but lower quality. 650$ apartment would be easier to rent than a 1100$ one.
Deal 2: higher rent = higher quality tenants but lower pool overall. Harder to rent 1100$ apartment, especially in recession when owning becomes more affordable. Higher paying jobs are harder replaced (for the tenants) than lower paying jobs (could work at McDs and still manage a lower rent)
I think you should base your decision on what your priorities are. Are you looking for good cash flow or are you ok with just coasting by? Do you want tenants who will give you less headaches and treat your property like its theirs or are you ok with tenants treating it like trash? That is the notion I am getting from your question.
Just because your tenants in Deal 1 will be paying lower rent, does not mean they are guaranteed to pay you on time or all the time. The day those tenants decide that they don't want to pay you rent at all, you will be in the same predicament as Deal 2 if they lose their jobs.
Besides I know people who were paying $1,300 to $1,500 in rent during the recession and they made it through. So for a tenant not to be able to pay $1,100 in rent during a rough time is a little weird to me. You can make $1,100 a month delivering pizzas alone.
So at the end of the day, pick the place which you feel will give you the most peace of mind, because at the end of the day, that's all that really matters.