Homeowners across the country have been very happy with the way prices of their rental properties have increased in the last few years. Monthly rents have also jumped higher at a corresponding rate, helping in increasing incomes from rental income properties of these owners. With a recent slowdown in price appreciation of homes, there has been some concern among landlords. They have started to ask whether this rent bubble will continue to become bigger or is it going to burst soon. As a landlord, your business is dependent upon your rental income. It is better to have a contingency plan ready when rents start to go down.
Rents are increasing as property prices are increasing
Monthly rents are intricately linked with the rate at which property prices are increasing in a housing market. Rents have risen so much that they are touching the roof. These high rents have also led to a whopping increase in the prices of rental income properties. This is true not only for existing properties but even housing projects that are under various stages of construction. But with slowdown in property prices, rents have also showing stagnation.
Make hay if sun is shining brightly
All this makes one wonder if there really sufficient numbers of potential renters are and if they can actually afford such high monthly rents. Even realtors and landlords have no answer to this question. They are only saying that homeowners and landlords should make merry and maximize their returns when the rents are rising at a brisk pace. But there are experts who are repeating the dictum what goes up must come down. No one is sure when this rent bubble is going to burst. In such a scenario with no solid advice coming from any quarter, here are few things that landlords must do to be prepared for any eventuality.
Be conservative in your monthly rental estimate
As a smart landlord, you should not overestimate the monthly rentals when you are about to buy a new rental income property. You need to remember that cash flow is everything in a rental income business. Making a conservative estimate of rental income is better than be disappointed when you find that actual rents are lower than what you anticipated. This way you will not feel the pinch when rents start to go down in future.
Sell your property now
If the rumors about rent bubble burst are correct, it is a good time to sell your existing rental income property. You can hold on to it if it is generating good net operational income but if you are barely making ends meet, you would be better off selling it now to realize a good price. Sell now rather than waiting for the time when property values have depreciated. You can fetch a high price for your rental income property now when there are many buyers and there is strong demand for your property.
Wait to see what happens next
Wait for some time to see how things eventually turn out. While the price rise has slowed down, values of properties are still increasing. It is better to wait for some time to see if they start to depreciate. Till then, you can enjoy high rents from your rental income property. However, you must be ready to act and sell your property as soon as this bubble bursts. It is a good idea to consult a seasoned realtor and request him to be ready with the action plan as soon as he learns about lowering property prices.
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As a top producing Realtor and Property Manager; Terry specializes in sales, extensive construction homes, rentals, REO’s, short sales, and all aspects of Real Estate. After graduating the University of Michigan with a master in MBA, Terry continued his endeavor and now has over 15+ years of experience in the Real Estate world. If there is anything that has to do with Real Estate and sales, you can always be sure of Terry to provide important, specialized knowledge.
