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Should You Cut Rents After COVID-19?

Jul 05, 2020 by Aly J. Yale

Rent cuts were common at the start of the pandemic, largely due to decreased rental demand and tenants looking to stay put. But according to new data, it appears price reductions have fallen by the wayside. In fact, rents on executed leases were up almost a full percentage point in late June -- a far cry from the 6.4% slide we saw in April.

Still, that doesn't mean rent cuts are completely gone. And if you have vacant properties in your portfolio, you might be considering some yourself.

Should you reduce rents in order to bring in new tenants? Here's what you should consider before you do:

Has your community been particularly hard-hit by the pandemic?

This is the first factor you'll want to consider. If layoffs are rampant or industries in your area have been particularly hard-hit by the pandemic, a rent cut might be necessary if you want to stay in locals' price range.

Are you still on par with other rents in the area?

What are other similar properties charging for rent? More specifically, what price are they leasing at for new tenants? You'll need to fall in line with comparable units -- or even go slightly under -- if you really want to fill those units.

How long has the property been vacant?

At the end of the day, you're dealing with the economic impacts of the pandemic, too. So while covering the bills for a vacant property might be possible for a month or two, it's definitely not a long-term option. If the unit has been vacant more than a month or two, it may be time to consider a price reduction.

How wide are your margins?

Sit down and figure out your margins on the unit. How much do you profit on it each month, given your maintenance costs, insurance, and other expenses? Is there even room to cut rents and still see returns? You might want to sit down with your accountant and crunch some numbers here.

Just how much should you cut?

If you do opt to reduce your rents to drum up a new tenant, make sure to do so wisely. Have a good pulse on your total expenses for the property, as well as what other, recently leased properties are charging in your area. Understanding the typical local renter is also important, especially in light of the economic struggles many are going through.

Generally, you'll want to stick to a small decrease at first -- maybe 5% or 10%. If that doesn't drum up a few applications, then you can consider reducing further from there. Just remember: Cutting rents isn't your only option. Homebuying demand is up right now, so if you've got a single-family rental, selling can also be a smart option -- especially if you're having trouble finding a tenant.

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