How Does Inflation Impact Real Estate Investors and Landlords?
Throughout the past year or so, many goods and services are increasing in price due to inflation. Unfortunately, this makes it difficult for some consumers to get what they need–even investors and landlords. Additionally, the supply and demand of housing are impacted by inflation as well, making it challenging to invest. If you’re wondering about the impact of inflation on real estate, keep reading. We’ll discuss everything you need to know about how landlords can navigate inflation.
What Is Inflation?
Inflation is the increase of goods and services over a period of time. Typically, inflation is calculated by year. That said, while prices can differ depending on the situation, inflation causes an increase in the supply of money. Inflation typically occurs due to the actions taken by the Federal Reserve.
In short, when more money becomes available, the purchasing power of a dollar decreases. As a result, this increases the price of goods and services. Inflation impacts most products and services, including real estate. So, what does this mean for investors? First, let’s discuss some causes of inflation.
What Causes Inflation?
The increase in the money supply is what ultimately causes inflation. However, there are a few different ways this can affect consumers. For instance, an increase in money creates an increased demand for goods and services. After all, when there’s more money available, it leads to higher spending and more demand.
Another cause of inflation includes the rising expenses of producing goods and services. Ultimately, more expensive production is directly correlated with inflation. After all, if a product is more expensive to make, it causes the price of the product to increase as well.
What Is the Impact of Inflation on Real Estate?
Real estate is affected by inflation in many ways. For instance, with higher wages and expensive supplies and materials, the price of building a home increases significantly. As a result, investors have trouble finding reasonably priced rentals to expand their businesses.
When inflation causes interest rates to increase, money is more expensive to borrow from the bank. As a result, this can lead to fewer investors financing rental homes at all. However, increased rental home demand allows current landlords to raise monthly rent prices, which has caused the current affordable housing crisis.
How to Invest Despite Inflation
If you want to invest in real estate during high times of inflation, it can be difficult to determine which investments are worth it. That said, despite high mortgage rates, investing in real estate can create several opportunities for investors. For instance, with extremely high demand for rentals, you likely won’t experience long vacancy periods.
Also, landlords control rental rates depending on their property location, amenities, and inflation rate. So, you don’t have to miss out on profits. Ultimately, rental properties tend to hold up well during periods of inflation since they can increase in value.
Does Real Estate Protect Against Inflation?
Real estate is known to be used as a hedge against inflation. In some cases, this is true! For instance, landlords can charge higher rates during periods of inflation while paying the same fixed mortgage payment. As a result, this allows landlords to profit while others are paying higher costs for housing.
Furthermore, housing prices commonly increase over time, allowing investors to take advantage of this impact of inflation on real estate. Read along as we go over how investors can take advantage of the impacts of inflation.
- Effects of Inflation on Debt- When prices increase, the loan-to-value of property mortgage debt lowers. So, while rental property equity increases, mortgage payments stay the same.
- Increase of Property Values- Property values historically increase over time. So, despite inflation, your property could be worth more in the future.
- Owners Can Earn More Money- Investors with several rentals can benefit from short-term lease agreements by raising costs. After all, when you raise monthly rental rates and your mortgage payment stays the same, you end up with more money in your pocket.
Is Now a Good Time to Invest?
Making investments at the right time is crucial for a successful rental business. In recent years, we’ve seen increases in home prices with a diminishing supply of homes available to purchase. So, is now a good time for investors to buy real estate before prices increase even more?
Well, people will always be looking for housing. In fact, first-time homebuyers can choose between renting vs. buying a home. However, most homebuyers are losing to competition or being priced out with a highly inflated housing market. As a result, the rental market currently has low vacancies and high rental rates–which is great for current landlords.
When it comes to the rest of 2022, it’s hard to say what will happen with the housing market. However, many predict increased demand and even higher home prices. With that, buying real estate before prices increase can provide more opportunities for landlords in the future.
How Can Investors Prepare to Buy Properties Despite Inflation?
If you’re a current investor looking to purchase more rentals this year, there are several things to consider. For one, keeping up with market trends and implementing helpful financial strategies is crucial. Before investing this year, let’s go over a few things to keep in mind.
- Evaluate Finances
- Buy When You’re Ready
- Look Into BRRRR Financing
Before you think about your next investment, you must take a good look at your finances first. After all, purchasing a property is a large purchase, so it’s crucial to fully understand how much you can afford and how much you need to save first.
Unfortunately, it’s easy to run into financial roadblocks if you don’t plan out your investments. Luckily, if you own rentals in Virginia, your property management company in Fairfax can help you keep track of financial reports for your rental properties.
Buy When You’re Ready
Don’t make large financial decisions unless you’re ready. After all, if you’re not in a position to make a large real estate purchase, it’s important not to let anyone pressure you. Alternatively, wait until you have a solid investment plan and feel positive about your purchase.
Look Into BRRRR Financing
BRRRR financing is a great investment strategy for some investors to build a well-founded rental portfolio. BRRRR stands for Buy, Remodel, Rent, Refinance, and Repeat. Although it takes a lot of time, money, and work, BRRRR financing can provide high income while expanding your rental business.
The BRRRR method is excellent for investors who want to grow their portfolio quickly, are up for a challenge, and want to learn every aspect of real estate investing. If this sounds like you, then maybe it’s time to look into BRRRR financing.
Protect Your Investments With Property Management
Trying to navigate the impact of inflation on real estate is challenging for investors and property owners. That said, learning the housing market and determining when to purchase properties while running a rental business can be hard for investors to handle alone. Luckily, your local property managers in Fairfax are qualified and eager to help you manage your business.
Regardless of how many rental properties you own, Bay Property Management Group has your management services covered. Our professionals can help with tenant screening, maintenance, rent collection, and more. Contact BMG today if you need management services in Baltimore, Philadelphia, Northern Virginia, and Washington DC.