In times of inflation, increase real estate values and incomes

Inflation has reached a 17-year high, according to a mid-January announcement from the US Department of Labor in Washington, DC. Additionally, personal earnings have in fact lagged this growth by.9 percent at the same time, which is even more shocking. Most people will consider this to be bad news. However, if you own rental property, there is a bright spot in this storm lentor modern.

You might discover that now is a great time to take advantage of the market by making improvements to your current properties that will enable you to increase revenues when you take these two financial considerations into account and acknowledge the absurd increases in single family real estate prices. Because interest rates are still so low, there is a good chance that the cost of financial improvements will be both manageable and profitable. People will pay what is necessary to have a place to live. Less people being able to purchase homes forces more people (with more money) into the rental market, which feeds the pressure for rents to increase across the board. If your property possesses the necessary features or amenities, you should have no trouble obtaining the higher rents. Here is an actual illustration of a residential complex that is undergoing unit-by-unit renovations. See if these percentages and numbers make sense by focusing on just one unit.

A 575 square foot apartment would cost $12,000 to tear down and rebuild.

A $100 monthly or $1,200 annual rent increase is expected. (10% annual percentage yield on investment).

Using the $1,200 in new revenue and an increase in value of 7%, the new value is $17,143.

So the question is, would you invest $12,000 to have a $43% increase in the real value of a property to $17,143 immediately and then continue to earn a 10% cash-on-cash ongoing yield on the initial invested amount? If “No,” you might want to think about looking for work elsewhere. (Show me another place where you can turn $12,000 into $17,000 this quickly, this securely, and this easily and still have a great ongoing cash return.) If you said “Yes,” you should review your current holdings to see if this kind of opportunity for upgrading exists (appliances, HVAC, amenities, lighting, landscaping, etc. etc. etc.) Always keep in mind that if the debt service on money borrowed to make improvements is less than the increased revenue, you have a positive spread, an increased NOI, and a higher market value. This actually creates wealth.

Treat your choices as a business, as you should with everything in this industry, and follow the numbers. If you know how to approach the various marketplaces and conditions, it’s always a great time to be in real estate. I wish you luck and success in your real estate career.


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