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Many people have rental properties to bring in extra income. They rightfully figure it’s a way to hedge bets. If something goes wrong with their business or job, they at least are bringing in some money from a rental property, and if times are good, that extra money can always help.
Still, it begs the question: what happens if times do become bad? If there’s a real estate recession or any recession, for that matter, could I lose my tenants, and then suddenly be paying for an empty property right when I need that rental income the most? Could a rental property become an albatross?
Well, anything is possible, and I’m admittedly biased given my occupation, but the data suggests the opposite — and I can tell you, as the CEO of a national property management company, that in a weird way, recessions can be extremely good for the owners of rental properties. Not that I would ever wish for a poor economy or a housing recession, and if downturns are good for rental properties, a healthy economy is even better. But here’s why a recession shouldn’t scare you if you have rental properties.
It’s the housing market, not the rental industry, that tends to get hit the most during a recession.
Sometimes there are other factors at play. For instance, during the early to mid-1970s, oil and international strife was one of the major players during the recession. The end of the Vietnam War didn’t help either.
But the housing market was throttled during the Great Recession of 2008 and 2009. A major reason the whole thing started was with the subprime mortgage market. It was bad enough that you could almost call it the Real Estate Recession of 2008 and 2009, and it has left plenty of people in the mortgage and housing industry jittery. For instance, you have real estate companies like Zillow predicting a recession in 2020, though many predictions suggest whenever there is another recession that it won’t be anywhere near as bad as the previous one — and some predictions, such as from Bloomberg Economics, suggest that there won’t be a recession, at least not next year. Housing may not be as badly affected either.
But the point is that when recessions happen, housing is often affected, and when people can’t afford to buy homes, they rent.
Rental income may be your one steady oasis in a recession.
It is possible to have things go south with a rental property in a recession, of course. You could have your tenants unable to pay and they leave, and then you have trouble filling vacancies — and you might even have to lower your rent to entice people to move in.
But you’re likely only going to have problems finding tenants if you’ve let the place go. Generally, if you have a property that’s well run, you’re going to keep tenants — and that rental income may turn out to be your bulwark in an economic storm. You may find that with a business, you have to lower prices and profits and sales may be down. But if you have reliable tenants, month after month, you’ve got steady income to protect you and prop you up in a recession.
The rental market also does well when there isn’t a recession.
When nobody can afford a house, the rental market does well, but it also thrives when houses are expensive. When the economy is booming and there’s a huge demand for homes, the price for homes go up, which often means people turn to rentals. And unfortunately for tenants, right now, rentals are in high demand, and the supply is so-so, meaning that rents are going up. This means that if you’re a landlord, it’s a very good time to be a landlord.
In fact, if you’re a business owner or entrepreneur-minded and you don’t own rental property, I’d argue that you should buy some and begin renting it out to create an additional revenue stream and as insurance in case the economy does later bottom out and there ever is a real estate recession. When you purchase a rental property, you’re buying more than a place for people to live — you’re buying yourself some stability and peace of mind.