Deepak Malhotra, Investor & Landlord, Cheney WA,  99004

Falling Rents in NYC


https://nypost.com/2020/07/22/why-falling-rents-mean-big-trouble-for-nycs-future/

The New York Post reports that rents are falling in New York City. This is more evidence that people are fleeing cities for the suburbs. With more people able to work from home, they are escaping congestion, traffic, protestors, and crime, and heading to suburbs or smaller towns.

The drop was highest for the priciest units. The average cost to buy a condo also fell over four percent.

A quarter of NYC renters aren’t paying at all and have gone four full months without paying. That leaves landlords in NYC in bad shape. Sure, the rent will be due when eviction moratoriums end, but tenants who don’t have jobs are non-collectable. On the other hand, the mortgages will be due or the banks will take the properties. The eviction moratoriums effectively have private property owners subsidizing tenants, a job that should fall to state and city governments.

Landlords with non-paying tenants may well decide that being a landlord does not pay. It is possible that they will sell or suffer foreclosures. Those that sell will think twice about buying in jurisdictions that have caused them great financial harm.

Cheaper rents will benefit those who stay in the big cities. However, there will also be less inventory when landlords sell. At present, landlords who have non-paying tenants cannot sell their properties because who would buy a property with a non-paying tenant. The cap rate would be very low if not zero. Positive cash flow has always been difficult to obtain in the biggest cities. Buyers there subsidize their tenants and pay out of their pockets every month in hope of better appreciation than elsewhere. However, when times are tough, values in the bigger cities can go down quicker than elsewhere.