CPI inflation came in hotter than mid-July at 9.1% from a year ago. Gasoline, airfare, and food inflation are persistently high. Does your grocery store have a loan officer in the meat department yet?
Maybe there’s real demand for beef ground chuck mortgages. But what bank wants to hold rump roast loan debt on their balance sheet?
The annualized inflation rate (one month change multiplied by twelve months) is an eye-popping 17%.
Last month, a record share of Americans said that inflation is their No. 1 financial concern.
Everyone in charge is playing the inflation blame game.
President Biden points to external forces, like COVID-19 and Russia’s invasion of Ukraine.
His foes blame it on stimulus checks, trillion dollar spending programs, and paying people to stay at home.
Others say that it’s the Fed’s fault. They misread the situation, called inflation “transitory”, and should have hiked rates sooner.
Last week we learned that 372,000 jobs were added in June. That was greater than expected.
Sure. It’s good to know that your tenant is employed. Jobs numbers like that make a recession slightly less likely.
But this is inflationary too.
It increases the chance that the Fed will make another healthy rate hike announcement in just thirteen days on July 27th.
Just imagine if your home’s electric bill was higher than your mortgage payment.
Sound ridiculous?
That’s what can happen if high inflation hangs around year after year.
Mortgage payments don’t adjust with inflation. In a sense, this makes it an asset.
Operating expenses like property tax and property insurance costs are rising. The insurance costs on some of my Florida SFRs are up 40%+ since last year.
Property appreciation has been pushing skyward farther than the James Webb Space Telescope.
That’s great.
But it doesn’t help you pay your rising monthly operating costs.
Rents do… and they’re scorching hot too.
Surging rents usually more than cover rising operating expenses like taxes and insurance.
That’s simply because rent is a higher absolute number.
You might remember that’s the third crown, Cash Flow Enhancement, in the foundational 3-part video series where I describe the Inflation Triple Crown™.
Many property managers don’t raise the rent aggressively enough.
Apartment building owners are often better about making healthy rent increases than single-family rental owners are.
Raise the rent.
You deserve to. Not only are you adjusting to the market amount. Consider how you learned and took risk to get to where you are today.
Perhaps you:
- Diligently built your credit
- Educated yourself on real estate
- Accumulated a 20% down payment
- Took on an 80% bank loan
- Persevered through the COVID uncertainty
You did all this to provide good housing to someone else.
In this climate, more viewers have been watching my video on the best tips for raising the rent.
When you own real estate for yield, this high inflation is a boon.
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