Inflation Affects Investors And Tenants Differently

Inflation has been a hot topic over the past few months. It seems to be on everybody’s minds and many are worried about what the future holds if this trend continues. In the world of real estate, attitudes vary depending on which group you lie in. While tenants are likely frustrated with the predictions, investors are hopeful. Inflation affects investors, homeowners, and tenants differently. Let’s take a look at inflation and how each of these groups handles it.

Inflation

Inflation is essentially a decrease in the purchasing power of money and it is reflected in an increase in the cost of goods and services. As inflation increases, every dollar of yours buys less, which of course impacts your ability to spend. In the housing market, we were already seeing high demand and short supply. The pandemic only made things worse, magnifying these conditions. This shortage drives prices up for tenants and potential homeowners while investors stand to make more on their real estate investments.

Homeowners/Tenants

Inflation in the real estate market actually benefits homeowners in some ways. Their property value increases, meaning they would stand to make more if they decided to sell. When demand is so high, sellers raise their asking prices and receive many offers, some of which are above the asking price. It’s a great time to sell, but then they face the challenges of buying from which they just benefitted.

For tenants, it’s a much different story. Rental rates increase and they are either forced to try to downsize (difficult to find vacant rentals in a high demand period) or simply swallow the fact that they will have to pay increased rates for the same rental. We also sometimes see homeowners sell, keep the profits in savings, and downsize to a rental unit.

Investors

If you are currently invested in something like a multifamily property in a high-demand market (like the Inland Empire, for example) you should expect a steady increase in ROI as rental rates increase. In the current inflationary market, we are not seeing financing rates rise along with inflation, which benefits you even more. You’re paying the same amount for a higher return. 

If you are not yet invested but are considering it, keep in mind that these market conditions are ideal for long-term investments, but can be risky in the short term. One of the dangers of investing short-term during an inflationary period is the possibility of a real estate bubble burst. Keep this in mind when you make investment plans. 

SDC Ventures has new multifamily property development investment opportunities in one of the top five hottest multifamily markets in the country: The Inland Empire. Job growth, migration from more expensive neighboring areas, and a pipeline of young workers combine to make it one of the best places to invest in multifamily property. If you are interested in learning more about our upcoming developments, please contact us.