Inflation vs. Your Rental Income
Today, let's delve into a pressing topic—how inflation affects your rental income and financial situation. My aim is to break this down into an easy-to-understand discussion, based on my background as a property manager and investor.
Inflation: The Basics and Its Compounding Effects
It's crucial to grasp how inflation impacts costs over time. The Consumer Price Index (CPI) offers a measure of the annual inflation rate, with figures showing 2.3% in 2019, 1.4% in 2020, 7% in 2021, 6.5% in 2022, and 3.4% in 2023. Although these numbers might not initially seem alarming, their compounded effect over five years results in a 22.2% increase in prices.
The Real Cost: How Inflation Affect Your Wallet
In your everyday life, this compounded inflation means your grocery bill now costs 22.2% more than it did in 2019. This isn't merely about current annual inflation rates; it's about cumulative increases. Now, apply this to your rental properties. Property taxes, insurance, and maintenance costs have all risen as well, often out pacing the official inflation rates.
Weight Gain Analogy: Visualizing Inflation's Impact
Imagine a 200-pound individual gaining weight at similar inflation rates. By 2023, this person would weigh 244 pounds, a 22.2% increase. Just as this weight gain isn't healthy, neither is the sharp rise in expenses for your rental portfolio or personal finances.
Market Dynamics: The Need for Deflation or Income Growth
Faced with these compounding increases, one of two things must happen for balance to be restored: prices need to fall, or our incomes need to rise. Without such changes, the cost burdens on property owners and tenants alike continue growing, further straining financial stability and cash flow from rental properties.
Your Feedback Matters
Let me know if this economic exploration was helpful or if you prefer content focused on property management topics like tenant screening and maintenance tips. As always, I appreciate your feedback and look forward to exploring more in future posts.