SPECIAL FEATURE
Becoming a Landlord is the Best Way you can Shield Yourself from Inflation If you are a follower of news headlines, you must have realized that everyone seems to be talking about inflation nowadays. And it is worrying! For the past ten years, we have been experiencing the full force of inflation in 2022, making the situation extremely volatile. So, why now? Why is inflation such a big deal today, and are you safe from inflation as a landlord?
F
irst off, no one is safe from inflation; it cuts across the board from the rich, and the poorest suffer even more!
Today’s economy seems to be doing so much better. It might remain that way for a while, driven by monetary and fiscal stimulus programs, record levels of job growth, robust consumer spending, a robust housing market, and the successful rollout and vaccination of the Covid-19. In addition, just recently, the president signed a $1.2 trillion bipartisan infrastructure package, while another proposed $1.7trillion “Build Back Better Act” is still in negotiations at the congress. BUT IS IT NOT TOO EARLY TO SPECULATE A GOOD YEAR? Indeed. Remember, the pandemic is far from over, and new variants keep emerging; there have been spikes of new cases each day which ultimately might disrupt the global economic 70 | FEBRUARY 2022
recovery. And in its response to the high inflation, the Fed began to taper, and it will likely raise the federal fund’s target rate in 2022, further discouraging spending and borrowing by the consumer. HOW IS THE REAL ESTATE MARKET PERFORMING UNDER THESE CIRCUMSTANCES? We all have heard that real estate is a good hedge against inflation. Well, that is true, at least partially. However, you need to understand that as a landlord, you will have the ability to raise the rents under certain economic conditions, which will increase the property value. Another fact you must understand is that many real estate leases usually come with contractual rent bumps, which are generally directly linked to the annual inflation rates. The third fact, when inflation starts rising, that means even the replacement costs will increase too, including the costs of
