Rents Falling, Tenants Moving

Posted by Teresa on March 31, 2009 under Housing Trends, Landlord Tips, Tenant Credit Checks | Be the First to Comment

Falling Prices no Cause for Panic

The heated rental market of the past few years is definitely over. Rent increases followed housing price increases to unsustainable levels. Reports from around the country show that rents continue to fall.

In New York City, the biggest drop, 8% over last year, was in the category of studio apartments in doorman buildings.  In a city like New York, where rents are excessively high when compared to the rest of the country, that’s significant. Renters in NYC are used to numbers like $3,395 for one-bedroom apartments with a doorman (but you can lose the doorman and pay only $2,632).  It’s a tough, competitive market—but people are finding more rental deals than ever right now.

Renters who signed leases at the height of the bubble are more interested in investigating their alternatives—including moving—than before. Most folks are not willing to pay more, but they are looking for—and finding—similar properties for less money.

Other renters are downgrading to cheaper properties just to save money.  With job security at a new low for many working people, the opportunity to save several hundred dollars a month only makes sense.  Thrift is in, and the ability to sock away money in savings appeals to people who never considered it before.

What could this mean to landlords and property managers? Expect to work a little harder to secure and keep good tenants. It’s a renter’s market, but there are still good, solid tenants looking for rental properties. Make sure your property is in top condition and advertise it well.

In this market, current tenants might ask for rent reductions at lease renewal time. To avoid reducing the rent, think creatively of other ways to keep them. Perhaps you can pay for certain utilities, or upgrade the cable package. If you have a vacancy elsewhere, upgrade a good tenant to a nicer property.  A fresh coat of paint or new carpet could be perks a tenant would stay for.

Some landlords, desperate to keep properties filled, are accepting tenants with bad credit. This “I’ll take anyone” approach is a mistake. Tenants with bad credit could cost you much more money over time than you’ll lose by waiting for a solid tenant. And in this economy, a low credit score is likely to get worse, not better. There is no better time to thoroughly check your prospective tenants’ backgrounds and credit histories.

The rental market will swing back up again. Rents are often tied to jobs, and when job numbers increase again, look for signs that rents are on the increase.  Until then, be patient, don’t panic, and plan carefully. Consider new ways to keep your properties leased; be open minded to new ideas and to all requests from your tenants.  But remember, you are under no obligation to let tenants out of a binding lease, just because they can rent somewhere else for less.