Experts and major financial institutions are predicting a long-lasting recession sooner than we think. If we take a look at Bloomberg’s probability model, the most recent forecast hits a 100% probability with the 12-month estimation of a downturn by October next year.
And when you consider the rising inflation, tightening financial conditions, and raising interest rates, it seems like a recession is just around the corner.
With plenty of talk about the economic downturn, many management company owners are worried that the growth of their businesses would be stunted and undo all the post-pandemic recovery efforts as the real estate cycle is shifting.
So the big question is… can property management companies thrive during the inevitable recession? Let’s find out.
Weathering The Big R-Word
The industry has experienced a few crises like this before. From the effects of The Great Recession in 2008 to the infamous Covid Recession in early 2020, economic downturns are not new in Property Management companies that have been operating for many years. So, chances are your company will not crash and burn and will find a way to adapt.
Let’s use The Great Recession as a reference for the industry’s worst case scenario. This era in American real estate revolved around high prices of homes, dropping 19% to 50% in value in the first quarter of 2009. Meanwhile, US rents continued to go up, even after the recession recovery period flattened the trend for a while.
The Demand for Rental Properties
The good news is people still need a place to say, whether the economy is doing well or not. So even if rent prices increase—which it always does, rent levels do not decrease enough to completely collapse rental cash flow.
SOURCE: The Federal Reserve’s consumer price index for all urban consumers over the last 75 years
Another thing about recessions is that people are scared to spend money, which is why fewer people can afford to buy houses and pay mortgages. This usually results in a growing number of renters, making it an opportunity for the rental property market to step up since the demand will most likely increase even more.
So Does That Mean My Business is Recession-Proof?
Unfortunately, there’s no such thing as a recession-proof business. However, since the rental property industry has a record for performing well during economic downturns, it’s a good sign that your company can still thrive when the inevitable happens. To help you out, here are a few things you can do to make sure your Property Management company stays competitive:
1. Step up your marketing game
As a property management company, a recession is a great opportunity to find overwhelmed owners and landlords. So, double down on your marketing strategically because chances are your competitors are making advertising budget cuts due to fear.
2. Watch Out For High Turnover Rate
Tenant turnover rate is one of the underlying effects of a recession in the rental property space. So having clear strategies in place like providing timely customer service or offering strategic and consistent rent hikes will incentivise your tenants to stick around.
3. Reduce Your Overhead Cost
As costs continue to rise, you can explore a few cost-cutting opportunities. These days, controlling your expenses is easier than ever. Some examples are utilizing the digital space for advertising rather than traditional marketing, or hiring your IT, admin, and accounting staff remotely.