One business doing well despite current economic conditions is the manufacture of FOR RENT signs. Vacancies are proliferating while the laws of supply and demand are pushing rents lower. After years of nothing but rising rents, it may be time for a little primer in how to rent apartments in a declining market.

The first thing to do is to avoid the high cost of mispricing you unit. Recently an owner listed a unit at $3950. Five weeks later it was reduced to $3,750. Two weeks later it was reduced to $3,650. Two weeks later it was reduced to $3,500. Three weeks later it was reduced to $3400. Three weeks later it was reduced to $3200. It was then rented six weeks later. The total rent lost while the owner fumbled for the market price was $16,000. In a declining market, forget the old adage, “let’s start high, we can always come down.”

If you rented the unit in the last year or two, count on getting a lower rent level that you did before. To give some guidance on how much to reduce your asking price, I compared some recent rentals with their previous rates. These rates were the comparable rates in the last month or so for the SAME apartment rented about a year ago. The reason for comparing the rents on the same apartments was to eliminate the skewing effect of lack of comparability between units.

Here is a summary of the findings:

Note two-bedroom units have declined slight less than one-bedrooms in the same zip code. Many two-bedrooms are shared, minimizing the impact of rent levels to the individual renter.

Using this chart as a guide, if you have a one bedroom North of Wilshire (90403) that rented about a year ago for $1600, I would recommend that you begin asking no more than $1450 ($1600 minus 8.65% rounded down to the nearest $50). But, keep in mind that the market is continuing to decline and that this chart is just a guide.

The chart is based on units renting between about $1200 and $2500 per month. My sense is that for units renting above $3000 per month the decline in value is greater than lower priced units. As a starting point I would recommend assuming a 15% decline in these units.

Your customers are comparison shopping your asking price against other similar units. They probably know the market better than you do. Your job is to listen to and respond to the market. If you are getting very few calls or calls where once people hear the price they don’t ask to see the unit, your price is too high. You should not go more than a couple of weeks at a given price without the unit renting until you reduce your price. Unless your asking price is way out of line, with each price reduction you should notice an increase in the number of calls and showings.

Avoid trying to be a market psychologist. If your unit isn’t renting, it’s not because of the weather, or because the Super Bowl is on TV, or because of Valentines Day, or because income taxes are coming due. It’s because your price is too high compared to the competition. Lower it and start collecting rent. As mentioned previously, as you search for market value, lower you price in intervals of weeks not in intervals of a month or more. Avoid the mistake of moving down with the market. You have to get out ahead of a declining market.

In addition to renting vacant apartments, you may also encounter tenants with expiring leases seeking to renegotiate a lower rent. Using the information above can assist you in reaching a mutually acceptable arrangement. Renegotiating is far better alternative than having the lost rent, rehabilitation costs and hassle of re-renting a vacancy.

One more thing. Don’t shoot the messenger.