With inflation high and prices for everything – including housing – having risen to shocking levels, there’s a lot of talk about another recession taking hold, or a temporary adjustment in the real estate market, which has been dizzying to follow over the last two or three years.
Have you thought about this, and what it means for your investment properties?
Tough economies are tough on everyone. You might find yourself holding assets that dip in value, and your tenants might find themselves struggling to come up with rent every month. All of us remember those first months of the pandemic; when employment was as impossible to take for granted as your monthly rental payment.
How can you protect your rental investment during a tough economy? We’re answering that question today, just in case you need to prepare for a downturn in the future.
Rein In What You Leverage
A tough economy is not the best time to hold a lot of debt. We always advise owners to exercise caution when it comes to what they leverage during or ahead of a recession or a downturn. When you find yourself holding too much debt, the cost of that debt can quickly seem suffocating. You’ll feel more vulnerable and less able to access cash – or equity – when you need it the most.
Refinancing will be nearly impossible when your financial ratios have declined. If you’re worried about what you owe, renegotiate or refinance your loans ahead of any tough times so you can potentially extend the terms and negotiate for lower interest rates. That won’t be easy now, with the cost of mortgages higher than ever, but take a look at your options.
You might be feeling fine, financially, right now, and that’s great. But, when you feel like the economy might be slowing down soon, it’s a good time to stockpile yourself a cash savings. It’s tempting to keep spending, and almost necessary now, thanks to the maintenance costs you’re facing and the higher price tags on everything. But, if you can tighten your financial belt and spend less now, you’ll be in a stronger position if and when the economy turns. Don’t touch what you don’t need. Let the rent you’re bringing in accumulate in operating accounts to ensure you have enough to cover upcoming improvements, leasing commissions, or vacancies that are sometimes more stressful during tough economic times.
Put a Tenant Retention Plan in Place
What you don’t need during a tough economy is a mass exodus of tenants from your rental properties.
Put together a good tenant retention plan now, when vacancy rates are at an all-time low and you’re not likely to lose a lot of residents to turnover. There are plenty of things you can do to retain good tenants, including:
- Developing a great tenant relationship that’s based on trust and transparency.
- Communicating well and listening when your tenants need to be heard.
- Responding right away to routine, emergency, and preventative maintenance.
- Providing incentives for lease renewals, such as a new appliance or updated paint.
- Keeping renewal rates reasonable, but still aligned with the local rental market.
Tenants appreciate conveniences and amenities, too. Are you allowing pets? This is a great way to retain tenants and bring in more rental income. Be flexible with payment methods, too. Accepting online or electronic payments will keep tenants happy.
Prioritize Preventative Maintenance
You will not want to replace your roof or your HVAC system when times are tough financially. If you’re already dealing with a recession or a tough economy, paying for a major repair or replacement at your rental property will hurt.
Preventative maintenance can help you avoid these costly surprises.
Have your HVAC system inspected and serviced annually. Make sure your roof is inspected and be vigilant about looking for leaks and drips that might indicate a future plumbing problem.
When you focus on preventatively maintaining your investment property, you’ll find there are fewer maintenance emergencies. There’s no danger of expensive deferred maintenance. Train your tenants to report small repairs right away. Don’t put off any work.
An effective preventative maintenance plan requires:
- A great network of vendors and contractors who can help protect the condition of your property.
- A maintenance budget. Be willing to invest in these preventative measures so you can save money in the long term and avoid expensive repair bills during tough economies.
- Tenants who are willing to partner with you to protect your property by changing air filters, keeping the property clean, etc.
- Routine inspections and maintenance walk-throughs to check for potential problems.
Preventative maintenance is always more cost-effective than emergency repairs and unexpected catastrophes. Invest in this now, so that when you’re worried about money later, you won’t have large repair bills looming over your head.
Watch Market Trends
Stay up to date on how the housing market is performing, particularly the local housing market. The sales market will be just as relevant as the rental market. Check the real estate news. Listen to podcasts. Subscribe to newsletters.
Work with a Visalia property management team.
You want to make sure you know what’s happening now and what’s coming next. No one has a crystal ball, but when you welcome experts into your network, you’ll find there’s a lot to learn and that what you learn can be very valuable, especially if there’s a downturn.
Stay up to date on the laws, the competing properties, and what sales prices are looking like. Follow rental rates too, and pay attention to how long it’s taking homes to rent. Follow the trends and the tenant demands. Get to know what your ideal tenant looks like, what they earn, and what they’re looking for in a rental home.
Invest in technology and automate what you can.
Understanding the market and how it’s performing will help you make predictions. It will help you feel less vulnerable if the market does shift and things begin to look grim.
Working with property managers can also help ease some of the uncertainty. Want to talk about the economic trends we see coming? Contact us at The Equity Group. We can discuss how your rental properties will be affected.