So much has changed for rental property owners in the last 2 years, from new laws to eviction moratoriums to skyrocketing rents. If your property is in the Inland Empire or High Desert, then you have also experienced some of the highest inflation in the country.
Everyone who’s been paying attention is well aware that here in the first quarter of 2022, inflation is here and doesn’t seem to show any signs of slowing.
We’ve all felt the hit to our wallets at the gas station and grocery store, but what about operating expenses for residential rental property owners? If you’ve had any recent repairs done on your property you’ve probably already figured this out - costs are up a lot for repairs too!
So what should rental property owners expect in 2022 and how can they prepare?
Vendors are harder than ever to come by. A recent Wall Street Journal article compared household repair professionals to the Prom King and Queen and gave advice on tactics to woo them into your good graces. It’s a bit tongue-in-cheek, but the truth behind the humor is real and the situations the author describes are relatable by many homeowners in California.
Think you can get multiple bids for a small job ($5,000 or less) on your rental property? Good luck. Vendors have more work than they can handle and barely have time to pick up the phone, much less bid a job for free in the hopes that they get it.
Put yourself in the vendor’s shoes - if there are dozens of jobs with eager homeowners, cash in hand, ready to pay up for a quality job, why would you waste your time bidding yet another job for free? It’s all about supply and demand and right now, supply of vendors is low and demand is super high as everyone looks to find ways to spend the money they have from our Government’s recent stimulus actions.
Vendors that are willing to bid a bigger job may require an upfront payment to do it to cover their time. The main takeaway is if you get a decent price from a vendor you trust that is able and willing to do the work, don’t haggle or try to find another vendor to beat them on price. Be thankful that you actually have someone to fix your property and just get the job done. There are dozens of other homeowners that would wish to be in your position.
Higher Labor and Material Costs
This one basically goes without saying after the supply and demand discussion above. When there is more demand than supply, prices will go up, and that’s exactly what we are seeing in both material and labor costs when it comes to repairs.
So the garbage disposal replacement that used to cost $225 probably costs closer to $275 now. The water heater replacement that used to be $1,100 is now $1,600 or more. And as inflation continues to rise, so will these prices.
Don’t be surprised when the bill comes in higher than you are used to. This is expected and normal. But that doesn’t mean you have to watch prices go up and do nothing about it.
Median rent in the country went up almost 20% in 2021. By raising the rent proactively, fairly and consistently, you can ensure that you stay ahead of price increases and inflation.
Many owners feel bad about raising the rent, but it should be easy to explain to a tenant that all of your operating expenses are up including repairs, insurance and property taxes. Rent increases are necessary for you to be able to keep the home and for them to be able to keep the roof over their heads.
That doesn’t mean jack the rent up by 20% this year. Anytime California is in a “state of emergency” there’s a 10% cap on how much you can increase the price of goods and services. It’s very unclear when these anti price gouging laws are in effect and when they aren’t.
CAA is currently pushing legislation that would clarify the state’s anti-price-gouging law, so hopefully we get some more clarity on this as soon as this year.
You should do a market analysis every year to determine what the fair market value of your property is and keep your tenant’s rent relatively close to it. Always keep in mind the condition of the home and length of the tenancy. You don’t want to raise the rent so high that your tenants move out and then you can’t actually get what you thought you could for it when you try to rent it again.
Increased Vacancy Time
Finally, as rents continue to rise, we will likely see more homeowners converting their homes to rentals, which leads to increased supply and could potentially mean it will take longer for your home to rent.
Homes have been renting in hours, not days, and we are starting to see that go back up to several days or even a couple of weeks for a home to rent. Rent prices can’t go up indefinitely so we should eventually start to see the top of what people are willing to pay, and have to start decreasing prices in order to get homes rented.
Summing It Up
Inflation is here which means it just costs more to own rental property. We didn’t even talk about the increased price of houses themselves, but those are obviously way up as well.
Don’t despair and don’t be surprised when repairs and insurance costs more. Keep up on your rent increases to ensure you are covering your increased costs and continue to maintain a good relationship with your tenants. Remember, vacancy is the number one expense rental property owners can experience, so keeping your rentals occupied is a top priority.