The COVID-19 pandemic is hitting the world pretty hard and causing major difficulties in the housing market. While home sales are up in many areas, including Houston, San Francisco, and South Florida, many renters have been struggling to pay the rent for months.
Property investors are facing an uncertain future. With evictions right around the corner in 2021, there’s no telling just how many people will end up scrambling to find affordable housing. Some investors are worried that renters won’t be able to afford full rent and, therefore, they’ll need to reduce the rent to get tenants. However, that’s not a good strategy for several reasons.
- There will always be tenants who can afford the rent
Many people believe that after the evictions take place in 2021, investors should lower their rent because they won’t be able to find tenants who can afford the rent. That’s not true. No matter what the economy is like, there will always be someone who can afford proper rent.
Feel free to lower the rent a little bit, but don’t feel like you need to cut the rent by 30% just to attract tenants. If you’re still unsure, get help from a property management company. With a property management company handling your rental properties, you’ll be in good hands. They’ll know the market and whether or not you need to reduce the rent.
Chances are, you’ll need to reduce the rent a little bit to match other properties in the area, but you won’t need to create a drastic reduction.
- Discounted rents can attract less-than optimal tenants
While we’ve been trained to believe discounts are a great way to attract buyers, that’s not always the result. Sometimes discounts attract people who are just looking for a bargain. This applies to goods, services, and even housing.
Don’t discount your rent just to get tenants. If you reduce your rent too low, you might attract people who are known as “professional tenants”— people who move in, find ways to get out of paying rent, and take their landlord for a ride.
To avoid potential low-quality tenants, don’t reduce the rent until you know it’s necessary. Compare rents in your area and see if your rent is within the average range. If other houses are rented at market rates, don’t reduce your rent just yet. Wait a little bit and see if it’s necessary before cheating yourself out of income.
- The economy will return to normal eventually
It may take a while for the economy to return to normal, but it will eventually. We won’t be stuck in a recession forever. If you reduce your rent now, and sign long-term leases for two years, you’ll get stuck with low rent even if the economy recovers in the next year or two.
It’s possible that the economy will start to turn around in the next two years and grow stronger. Tenants living on savings will become gainfully employed, and yet, they’ll still be getting a discount on rent until the end of their lease. When their lease is up, and you raise the rent, they may move out.
- Offer renewal incentives instead of discounted rent
Instead of offering discounted rent, start with offering lease renewal incentives. Especially if you already have a good tenant. Good tenants are hard to find and even harder to keep when times are tough financially, so a little bit of generosity will go a long way.
Offer to renew the lease at a small discount of $100 per month, give your tenant a few months of free cable, cover utilities for the first month of their new lease, offer to repaint the unit and clean the carpets so they can feel like they’ve got a fresh start. If you normally charge for parking, offer a free month of parking. Give your tenants an incentive to continue renting from you.
Focus on attracting high-quality, reliable tenants
Cheap rent is great for tenants, but not a good tenant-attraction strategy. To stay profitable long-term, you need reliable, trustworthy tenants - not tenants looking for a quick discount.