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Would a Recession Negatively Impact My Rental Properties?

Collaborative Property Management • March 24, 2023

How to Keep Your Rental Property's Value Up During a Recession

Rental properties are a good source of passive income for landlords and property owners, especially if they lose their primary source of income due to layoffs or lack of business. However, can rental properties continue to provide a stable passive monthly income for landlords if the country is in an economic recession?

That is the big question every landlord is asking themselves due to all the rumors of a recession coming soon. After all, no landlord wants to pay a monthly mortgage on an investment property that isn’t bringing them any rental income.

Well, the truth is that nothing is guaranteed. You may or may not lose your tenants in a recession because it depends on the circumstances, and the market sectors affected the most by the economic downturn.

But if history has taught us anything, recessions help the rental market more than hurt it. So whether there’s a real estate recession or a national economic recession, the demand for renting homes and apartments will rise in either scenario because people won’t have the financial means to buy them.

Therefore, if you’re lucky enough to own a rental property in the middle of a recession, you’ll have more people competing to rent your property. This puts you in an advantageous situation over the majority of the country.

Rental Market vs. Housing Market

Recessions affect the housing market more than the rental market. One early example was the recession of the 1970s, which was a time when the Vietnam War ended and international conflicts led to an oil shortage. The housing market was in trouble then, but the rental market survived.

A more recent example was the 2008 Great Recession, which destroyed the housing market after bankers and loan officers approved too many subprime mortgages to undeserving applicants. After nearly 10 million Americans lost their homes in the 2008 recession, they had no choice but to enter the rental market to rent apartments and houses.

Many so-called economic and housing experts have predicted the next recession for the last three years. When COVID-19 hit in 2020, they said a recession was imminent because of the stock market crash and the record number of layoffs. But the country was able to avoid a recession and a housing market crash, thanks to the government stimulus payments and other economic subsidies.

Now the experts are saying a recession will happen within a year. Well, even if a recession does happen, it will only help the rental market because millions of people will need to look for homes to rent if they lose the homes they purchased.

As a result, the owners of rental properties can continue to depend on steady rental income if a recession occurs because the demand for rental properties will be high. The only thing which could impede your rental income flow is if you have tenants who cannot pay their rent due to layoffs and harsh economic times.

You must also be realistic about the rental price you set during a recession. Since renters will have less income, they won’t be able to afford higher rent prices like you might have set before. So, you’ll have to consider lowering your rent prices to accommodate the income of the troubled renters in your market.

The best thing you can do is screen your tenants carefully and choose the ones who look to be the most reliable. The good news is that plenty of people will want to rent your home, so you’re bound to find one who is your ideal renter. It is always easier to find the perfect renter when several people want to rent your home.

Conclusion

The rental market does well during a recession and when home prices are high because most people cannot afford to purchase homes in either scenario. So you really have nothing to worry about as a rental property owner. Whether economic times are good or bad, you should be safe in your rental property investment.

Business owners or aspiring entrepreneurs should consider buying rental properties if they don’t already own them. A rental property is like a business venture which can generate monthly income for many years, regardless of the state of the economy. How many other business opportunities and investments can offer this kind of financial guarantee?

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