Economists refer to inflation as a sustain increase in prices for goods and services, which include real estate prices, rent, salaries as examples. As inflation rises, the cost of everything goes up including real estate and rents. Keep in mind the following:
- Vendor and labor costs are increasing due to increased prices for goods such as appliances, cost for capital improvements, and, parts and supplies.
- Where the market allows, factor in inflation by adjusting your rent appropriately to cover greater expenses.
- Rent can only be increased once every 12 months in Alberta
There are many factors to consider as inflation rises in the real estate market. As property values increase, so do expenses. When expenses outpace rental income gains, there can be concerns to the financial bottom line. Increased costs of ownership and maintenance upkeep of properties is occurring now, and is expected to continue. Real estate investors should be prepared for increased costs in the near future. Factors to consider when evaluating your real estate investment.
- Labour Costs: Quality contractors are difficult to find and as a result, labour rates have been increasing due to the recent shortage of skilled trades.
- Appliances & Other Capital Items: The cost of appliances and capital improvements has increased over the past couple of years. In addition to these increases, many new development and renovation projects are experiencing delays in completion times due to supply chain issues.
- Parts & Supplies: Some building supplies can be difficult to source and as a result have increased in price.
- Turnover Costs: In this current climate of increasing inflation, it is prudent to minimize tenant turnovers; tenant turnover costs and vacancy gaps are the biggest expenses borne by landlords. Turnover costs can include re-keying of locks and, remediating wear and tear throughout the property. In addition, there are costs involved to secure a replacement tenancy such as leasing, tenant screening and advertising fees.
- Property Insurance, Property Taxes, Condo Fees: We anticipate an increase in each of these expenses over the next year. Insurance and taxes are tied to the value of your property, which have and continue to increase. HOAs and condominium fees are experiencing higher costs, which in turn results in higher contribution fees. Insurance premiums have increased for dwellings in Alberta largely due to past fires, floods and hail storms throughout the province.
A landlord can attempt to offset these increased expenses by increasing rent and, minimizing vacancy and turnovers.