JOHANNESBURG – Although rental demand rises during an economic decline, rental rates come under pressure. This means that landlords will need to relook their rental price expectations.
Seeff provides a few recession tips for landlords:
However frustrating the economic climate may be, it is important to consider that it is better to fill your property at a lower rental than to let it stand empty. Your profit margin may be a bit lower and while not the ideal position that you would want to be in, at least you are still earning rental returns
An important consequence of a weak economy is that it puts pressure on household budgets and the amount that they can afford to pay for a rental house. There is little to gain by a landlord who sticks to a high rental rate or escalations that are out of step with the economy as this may prove unsustainable.
The likely outcome of sticking to high rental rates or hiking your rate by an above-inflation escalation is that you will end up with tenants who are unable to continue paying the high rental amount. Once a tenant goes into arrears, it often becomes very difficult to recover from that.
Another characteristic of a recession is rising vacancy periods. You will find that tenants will opt for smaller and cheaper units to relieve some of the pressure on their budgets. Empty rental properties are a financial burden and while one month may not seem like much, it can quickly become two or three months or more.
Aside from ensuring that you set your rental rate according to the prevailing market conditions, you should also consider incentivising good calibre tenants with a discount on the rent.
Finding good tenants who will look after your property is a challenge during any time, more so during a recession. You should always look after good tenants.
Like economic cycles, property markets go through cycles, but at some future point, the rental market will hopefully again improve to the extent that rates will rise again. In the meantime, good strategic thinking can ensure that you are at least still earning some rental income while your property is being looked after and continues to improve in value.
Be aware of local market conditions. In a challenging economic climate, a skilled rental agent can add real value as they work with rentals in your area on a daily basis and are best placed to advise on the most appropriate rental rate to attract tenants. They are also skilled at sourcing and vetting tenants and can assist you to find a good calibre tenant.