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What The Changing Rental Market Means For Real Estate Investors

Founder and CEO of Rentec Direct, property management software for real estate professionals.

This year has presented a myriad of changes that none of us could have predicted, but patterns are beginning to emerge as we get closer and closer to the end of 2020. Within the real estate industry, different markets are experiencing different challenges and different forecasts for the future. Even within the rental space, landlords are having wildly varying experiences based on the type of rental they own, the location of their property and the kind of tenants they’re dealing with. 

Short-Term Rentals

The short-term rental industry has arguably been hit hardest by this year’s pandemic, though some markets throughout the country are beginning to recover. One survey shows that almost a third of property managers with short-term rentals expect to see anywhere from 51% to 75% revenue loss in 2020 as compared to 2019. Even pre-pandemic, many experts were advising investors to approach short-term rentals with caution, warning that the short-term rental boom was likely unsustainable. 

Vacation hotspots like the Florida Gulf Coast, the Great Smoky Mountains and smaller West Coast cities saw a severe drop-off in vacationers due to the pandemic, leaving short-term rental investors struggling to meet their financial obligations. Many states implemented restrictions on short-term rentals, limiting non-essential travel or at the very least discouraging discretionary travel. Regardless of what happened from state to state, traveling rates across the country have been down, which has a direct impact on the short-term market.

As we move forward with continued uncertainty, investors should consider converting short-term rental properties into long-term rentals — or, at the very least consider offering extended stays of 30 days or longer. Transitioning to a long-term rental requires some different legwork than short-term rentals and may not be as profitable in the near-term, but long-term rentals can certainly offer some stability and less turnover during trying times.

Long-Term Rentals

The long-term rental market has not been without its own challenges this year, especially as renters across the country continue to struggle financially. Tenants’ inability to pay rent on time or in full coupled with widespread eviction bans has had a trickle-down effect on the long-term rental market as landlords struggle to make mortgage payments and fund other business expenses. 

The best advice I can offer landlords and property managers in the long-term market at the moment is to promote open communication and invest in a thorough tenant screening process. Communicate with your current tenants frequently and openly so they will feel comfortable letting you know about job or income loss sooner than later. If you are dealing with tenant turnover during the pandemic, proper tenant screening is more important than ever to find a qualified tenant who will uphold lease terms and be able to pay the rent. Be wary of income verification scams (i.e., photoshopped paystubs) and remember to verify income with new applicants, prior to renewing existing tenants or when tenants contact you to discuss rent relief.

Is Now A Good Time To Invest?

Times of crisis tend to offer the best investment opportunities for those who are prepared and have enough liquidity. If you can purchase a property today that presents the ROI you’re looking for, go for it. 

The pandemic has seen many homeowners moving to areas they may have not previously considered due to job opportunity, proximity to family or access to improved quality of life. While most opt to sell their home in order to purchase a new home, this is not the only option. Turning your home into a rental property can be a great way to ensure a reliable source of passive income. Especially if you are relocating for a temporary situation (a sick family member or temporary employment), renting your home with the intention to return can have many benefits. Renting your home temporarily can even allow you to become a renter yourself, allowing you to downsize while maintaining your mortgage payments and even turning a profit in some cases.

Only time will tell how the industry will continue to navigate these uncertain times. Investors will benefit from staying on top of changing regulations and restrictions and closely monitoring the markets in which they invest. 


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