A New Power Dynamic Has Taken Hold in Real Estate

In This Article

Employment is down, and rental demand is up. That’s the narrative sweeping the country, and landlords are learning how to make lemonade from the lemons of low housing affordability.

As home sales collapse and inventory expands, a slow buyer’s market has turned into a hot rental one. Although an abundance of available rentals in the U.S. is “tipping [the market] in favor of tenants,” according to CREDaily, astute landlords can leverage demand in their favor.

Advantage: Renters

A surge in new apartments and slower rent growth (national average rents dropped 0.3% in September—the sharpest decline for that month in over 15 years, according to CoStar) follows years of steady rent increases. Apartment rentals are stagnant in many markets, according to CREdaily, with Austin, Denver, and Phoenix seeing the most significant rent cuts. In these and other markets, tenants are able to negotiate concessions like move-in specials, shorter leases, and upgraded amenities.

For landlords facing delinquency and turnover from cash-strapped tenants, leveraging the need for housing means being flexible: balancing affordability for tenants with ensuring their long-term residency.

Job Anxiety

RentRedi data for October showed that 83.5% of tenants paid their rent on time; however, with greater economic uncertainty, including a prolonged government shutdown (now the longest in history), that could change.

It’s already affecting the homebuying market, with over 15% of home purchases falling through in the summer, the highest rate for that time of year since 2017. This increase is boosting inventory in the Sunbelt.

“What you don’t forecast is job anxiety being as deep as I think it is,” Tony Julianelle, chief executive of real estate investment firm Atlas Real Estate, told the Wall Street Journal.

Commenting on the recall of former Sunbelt renters back to the office, David Schwartz, chief executive of real estate investment firm Waterton, told the Journal: “There was a saying: ‘Stay alive until 2025.’ We’re in the camp, ‘We’ll be in heaven in 2027.’”

For landlords looking for a fix in 2026, there are some options available. Not all Sunbelt cities are struggling. A RentCafé analysis from September shows Miami is the country’s most competitive rental market, even in the peak season of the fall, with the Midwest’s Chicago not far behind.

How Short- and Mid-Term Rentals Factor Into Higher Inventory

The evolving rental landscape means landlords need to adapt and be flexible to boost cash flow. Short-term rentals (STRs) and mid-term rentals (MTRs) create another avenue for diversification in the right markets, so long as an efficient management system is in place.

Short-term rentals

STRs have been in the news recently due to tougher regulations. According to AirDNA, STR supply is expected to increase modestly by 4.7% in 2025. Demand for unique, experience-driven stays remains robust, as does demand from digital nomads.

To stay competitive, STR landlords are switching to direct bookings, becoming less reliant on platform fees, and leveraging artificial intelligence (AI) tools to offer premium amenities and designs, according to RiskWire.

Mid-term rentals

MTRs that offer one to six months of booking, appealing to traveling nurses, executives, and insurance claim clients, offer 10% to 30% higher rents than traditional leases, according to Rent To Retirement.

MTRs offer landlords a flexible middle ground between long-term tenants, providing a low-stress option in cities that prohibit STRs.

Candice Reeves, content marketing manager at Baselane Property Management, wrote in a recent report that analyzed information provided by 415 U.S. rental property owners:

Winning Strategies to Maximize Cash Flow

Like any business, landlords need to pivot and adapt to a changing market, using every tool at their disposal.

Creativity is the key to longevity for landlords. Being able to move with the shifting currents of the real estate market and stay liquid to do so allows landlords to survive.

A mistake many investors make is leveraging everything in their quest to attain more doors—only to find that when the market bottoms out or a black swan economic event, such as a pandemic or an earthquake, upends things, there is not enough cash to pivot and survive.

Here are a few strategies to stay in the game.

Diversify lease terms

Large management companies have this technique down to a science, blending three-month, six-month, and 12-month rental models, or mid-term rentals.

Adding 15-month and 24-month leases into the mix ensures leases don’t expire during tough rental periods, and are servicing the widest demographic possible. Some of this is covered in RABBU’s 2025 STR Rental Trends.

Optimize technology for efficiency

While AI can’t force a tenant to sign a lease, it can enable property management systems to work more efficiently by automating listings, maintenance, and rent collection. It can also track occupancy, tenant communication, and expenses.

Differentiate the property

This is a big factor in the short-term rental sector, but it can also help properties be leased longer by making them stand out from the competition. EV chargers, private office nooks, and innovative tech improve reliability and can justify tenants paying market rents.

Offset escalating expenses

Property insurance premiums are expected to have risen by 8% this year and 70% since 2019, killing rental cash flow. Energy-efficient upgrades, preventive maintenance, and diversified coverage are some ways to help offset these expenses.

Focus on retention

It costs approximately $4,000, on average, to replace a tenant, according to global payments company ZEGO. That’s around 30% to 50% more in additional costs than retaining an existing tenant.

TULU, a company that helps property management companies increase efficiency, suggests landlords do these things to improve tenant retention stats:

Being proactive with maintenance

Investing in security

Simplifying move-in

Being pet-friendly

Canvasing for feedback

Offering early renewal incentives

Having dedicated package lockers for Amazon deliveries

Implementing robust screening

Being responsive and supportive to tenants

Offering renters insurance guidance

Final Thoughts

Despite tough competition from other vacant apartments, landlords have one thing in their favor: They own real estate, and people will always need a place to live.

The next step is calibrating their properties to attract the most tenants. The most crucial factor in doing that is gauging the rent people are willing to pay for your property, then going above and beyond with decor and amenities to give them great value for their money while covering expenses.

Successful landlords who have been around a long time will tell you real estate is all about the long game. The most money is made from equity appreciation, not cash flow. If, during tough times, you can cover your costs and minimize tenant turnover by offering outstanding service to highly qualified, meticulously screened tenants, you will ultimately come out ahead through appreciation and debt paydown, not to mention the tax advantages.

Investors should remain liquid to absorb unforeseen expenses. Invest without your ego demanding you keep accruing doors, but rather with a cool head that first questions whether you can keep the doors you have, even if it means dropping rents in the short term to gain an advantage over your competition and survive the long term.

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