Getting into the rental market can be a fantastic and distinctive business and financial opportunity. But understanding how inflation affects real estate is crucial for people who have recently purchased property or are long-time homeowners. It is difficult for customers to buy what they need because of rising prices for products and services. Unfortunately, real estate is no exception.
Inflation affects landed properties in a variety of ways. This reality can make it difficult for investors to grow their rental portfolios and find affordable rental properties.
A lot of changes are brought about by inflation in the real estate industry, including increased mortgage rates, higher housing prices, a devaluation of long-term debt, an increase in building costs, and more. We’ll look more closely at the effect of inflation on the price of a rental in this post.
Impact of Inflation on Rental Properties
In general, inflation benefits property owners in the rental market by allowing them to raise the rent. This means their income keeps pace with the rising cost of products. Renters profit from inflation because fewer new rental units become available as construction costs rise.
Of course, inflation is not entirely beneficial to landlords because their rental income rises, and so do their expenses. In contrast, rental rates continue to increase even in difficult economic times, which is why purchasing real estate is regarded as a solid hedge against the impacts of inflation and the rising cost of commodities. You can always keep up with these costs if you invest in real estate.
As a nice bonus for homeowners, rising housing costs also imply that fewer individuals can afford to buy a home, which boosts demand for the rental market. With higher demand and limited availability, homeowners are more likely to get the rental prices they want, even if they are a touch high. Although some products and services may be more expensive, everyone requires a living space. Therefore, typical rent rates are often cheaper than purchasing a home, even when you factor in inflation.
When is the Best Time to Increase Rent?
- Based on Location
As a property owner, you must consider the location of your property before making a leasing decision. Is it a rural area or a suburb of a city? It’s crucial to remember that there are significant differences between rental prices in urban areas and those outside of them. Suppose your property is in a city, and you charge a lower rent than is necessary to cover the city’s needs and surroundings. In that case, you should raise your rental rates. Bay Property Management Group Northern Virginia can assist in determining fair rates.
Similarly, suppose your property is situated outside the city or in a rural location. In that case, there is less demand and a little cost reduction. In such situations, it’s wise to lower your property’s price. If you set the price higher, there’s a reasonable probability you’ll have many vacant homes, resulting in a significant loss.
- Extra Amenities
Additional amenities might be one of the simplest methods to raise the rent if your rental falls short of other nearby comparable rentals or if you need or want to be able to charge a higher monthly rent. Nevertheless, it would help if you exercised caution because adding amenities can lead to more expensive maintenance issues.
If you do your research first, adding more amenities may be well worth the prices you can charge. However, it’s crucial to deliberately pick a rental rate that will suit your financial objectives. Rent hikes are often only permitted at the end of a lease term, and renters are usually not amenable to high rental increases.
- Rate of Inflation
The first thing you should do before increasing the rent is to research what other properties in the neighborhood are charging for residences comparable to yours. You must do more than spit out a number because if you do, you’ll lose potential tenants if you charge too much and need help locating new ones.
Generally, how frequently and by how much you should raise your rent will depend significantly on the state of the market. You might raise rents more regularly than you would if demand were low, the market is strong, and there is considerable demand for rentals.
Check with your city to check if any regulations govern the amount or frequency of rent increases. For example, to provide tenants with more stability, some towns limit evictions after rent increases reach a certain level. In addition, there are restrictions on the maximum rentals you can charge in some regions of other cities.
Conclusion
Inflation generally works to homeowners’ advantage because it drives up housing costs, raises the rent, and increases overall revenue. This is a reality because, as people become more prepared to pay high rents than an unaffordable mortgage in that economic climate, the demand for rental homes rises.
You, as a homeowner, could incur additional costs due to rising prices for products and services. However, if you own a rental property, you can raise the rent to keep up with the inflation rate, protecting you mainly from the effects of inflation. Therefore, it’s conceivable that rent hikes will enable you to make a tidy profit and cover your costs.
