Inflation has been a buzzword in economic discussions lately, and for good reason. Rising prices affect everything from groceries to gasoline, and rental properties are no exception. Both property owners and tenants in Central Park, as well as the market in general, are feeling the impacts as inflation reshapes the rental market landscape. Let’s dive into how inflation impacts costs for rental properties from the perspectives of both owners and tenants.
Owners: Navigating Rising Costs
For property owners, inflation translates into higher operational costs. Maintenance, repairs, and utilities have all seen price hikes. This shows up in our day-to-day when our owners are sometimes surprised by the cost of certain services, such as the cost of whole-house cleaning being upwards of $300 - $500 (or more) and a simple trip charge for a vendor being upwards of $60 - $90 (or more depending on the trade). Moreover, inflation often leads to higher property taxes and insurance premiums, adding another layer of carry costs for a property. That said, when owners are looking at the higher cost of a good or service, we encourage owners to keep in mind that the same economic force is also what enables us to command higher rental rates, which will help maintain income on the property. Additionally, property values tend to increase over time, which can mean that a property may be worth more in the future, even when adjusted for inflation. (Most of our owners are in it for the long haul appreciation, rather than the month to month cash flow)
Rent Adjustments and Market Dynamics
In response to rising costs, owners may feel compelled to increase rent prices. However, this isn’t a straightforward decision. While raising rent can offset higher expenses, it also risks tenant turnover, which comes not only with inevitable costs for maintenance and home improvements but also can lead to vacancies and lost income. Striking a balance between covering costs and retaining reliable tenants becomes a delicate dance, which Focus will guide you on.
Tenants: Feeling the Squeeze
Tenants are not immune to the effects of inflation. As landlords adjust rental rates to keep pace with rising costs, tenants face higher living expenses. For many, rent is already a significant portion of their monthly budget and any increase can create stress on the tenants’ financial situation. Traditionally, a good rule of thumb was someone’s housing expense should be less than 30% of their gross income, but in many cases it now costs 50% or more, leaving them little room for all the other expenses in life! While rent increases can be particularly challenging for low and middle-income households, they also impact middle- and high-income households that we are typically servicing. To cope with higher rents, tenants may need to make tough decisions, such as cutting back on non-essential spending, relocating to more affordable areas, or even seeking additional income sources. Landlords should keep this in mind to maintain positive tenant relations and to minimize costly tenant turnover. At the same time, tenants can help keep their costs lower by maintaining the property well during their lease and leaving the property in good, clean condition when they move out to avoid deductions to their security deposit.
The Bigger Picture: Market Trends and Policy Implications
Inflation doesn’t just impact individual owners and tenants—it also shapes broader market trends. For instance, rising rents can contribute to an increase in homeownership as tenants look for more stable, long-term housing solutions. However, higher mortgage rates, another consequence of inflation, can make buying a home less affordable. If you’re interested in buying or selling a home, we can help you with this as well. Call or text Joe Phillips at 720-299-1730 if we can help!
Conclusion
Inflation is an economic force that affects every facet of the rental property market. Owners grapple with rising operational costs while tenants face increasing rent burdens and sensitivity to move-out costs. Focus is monitoring these pressures and helping navigate the perspectives of both owners and tenants at key decision points (e.g. when determining the rental rate for new tenants, determining whether to increase rent during a tenant’s lease renewal, and determining the level of maintenance and improvements to perform an on a home). That said, if owners and tenants alike are cognizant of the pressures faced by everyone involved, decision-making throughout the lifecycle of a property and lease can go more smoothly.
At Focus Real Estate we help busy people with their housing needs in Central Park, whether they want to buy, sell, rent or need help with property management. Please reach out if we can help!
