As an investor with rental properties in Phoenix, you may be worried about the presumed recession that is coming to the United States. It’s all we hear in the news right now. The economy isn’t performing as well as it should, and economic experts predict a recession.
So, how will your rental properties hold up during a recession? Are your Phoenix rentals recession-proof?
Unfortunately, no investment is 100% recession-proof, but as a rental property owner, you will fare better through a recession than those who primarily rely on the stock market.
What is a Recession?
Before we can start advising you on how to manage your Phoenix rental property during a recession, we must first define what a recession is.
A recession is when there is a decline in general economic activity. The main indicator is that the gross domestic product (GDP) falls for two consecutive quarters.
So, what does it mean in practice? Consumerism and trade are less active, prices may start to rise due to inflation, and there is an increase in unemployment.
The last recession we witnessed was the Great Recession in 2008, caused by the Housing Bubble. While the main focus of that recession was the real estate market, recessions don’t usually affect the market so aggressively.
Is My Phoenix Rental Safe During a Recession?
The great news about owning a rental property during a recession is that the rental market is hardly affected by economic events. The home buying and selling market suffers the most as we see property values decrease.
While your rental property may be one of the safest investments to have during a recession, that doesn’t mean you will not feel slight effects from it.
How a Recession May Affect Your Rental
Recessions may actually provide more of a renter pool because people cannot afford to buy a home. Therefore, there are more people searching for rentals.
The good news is that people will always need a place to live. Unfortunately, as a landlord, you may have to work with tenants to negotiate a fair rent price to keep it from being vacant.
One of the major effects of a recession on rental properties is increased tenant turnover. Oftentimes, this could be due to job loss and inability to afford the rent anymore.
Overall, your Phoenix rental property is fairly safe during a recession. However, you may need to make adjustments to ensure you retain tenants.
How to Make Your Rental More Recession-Proof
Even though Phoenix rents have increased 28% and vacancy rates have dropped in 2022, landlords should expect to make some adjustments to their rental business during a recession.
Adapting to an economy in a recession will ensure your rental doesn’t sit vacant and you still make revenue from your investment.
Negotiate with Late-Paying Tenants
Under normal circumstances, dealing with late-paying tenants could result in eviction. However, during a recession, you can’t necessarily afford to lose a tenant in a time of economic crisis.
Instead, negotiate with your tenant and come up with a solution for them to pay rent each month. This could be in the form of a payment plan or other compromise you both agree upon.
Offer Longer Leases at a Discount
If you’re trying to fill a vacancy during a recession, consider offering longer lease terms at a discount. Not only does this decrease tenant turnover, but it increases the likelihood of getting paid rent for the next couple of years throughout the recession.
Bonus Tip: When searching for a new tenant, be sure to conduct a thorough tenant screening process. You want to ensure the tenant is responsible, reliable, and a good fit.
Encourage Tenants to Stay
Consider making improvements to your property if it is outdated and could use some TLC to encourage your tenants to stay. If they are feeling a burden from the rent and are considering moving to a less expensive property, make them feel like they’re getting more for their dollar with renovations and improvements.
Also, remind them of the costs associated with moving. They’ll have to pay for a moving truck, deposits, and other fees. Show them they’ll actually save money if they renew their lease with you.
Get Default Rent Insurance
In a time of economic uncertainty and an increase in job layoffs, it’s a smart idea to get landlord insurance that protects you from defaulted rent payments.
If your tenant loses their job and misses a rent payment one month, you can rest assured that you will still get paid, thanks to your insurance policy. This insurance and certainty relieve pressure from you and your tenant as you both work out a solution to this issue.
Work with a Property Management Company
One of the best things a landlord can do while owning a rental property is to hire a professional property management company like Brewer & Stratton Property Management to take care of the day-to-day tasks, especially during a recession.
Knowing your rental is in the hands of real estate experts and educated professionals during a difficult economic time will give you confidence that your rental will perform to the best of its ability.
From acquiring new tenants to negotiating lease terms to coordinating maintenance and repairs, you can sit back and relax while you cash your rent checks each month without lifting a finger.
As Phoenix’s leading property management company, Brewer & Stratton promises to protect your investments while providing excellent customer service and delivering maximized revenue.
If you found this article informative, you’ll want to read 8 Key Components to Long-Term Rental Property Success next!