Why Inflation Continues to Surge Rental Prices

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Everyone had thoughts of a recession. But with all the free money and inflation, the exact opposite happened. Now at this point, we are dealing with surging prices and more inequality.
According to USNew.com, four of the top seven richest areas in America fall in Northern Virginia. (Loudoun County, Falls Church, Fairfax County, Arlington County) The annual household income for Fairfax County as of 2020 was $127,866. However, keep in mind this is for the entire household. So, if you, your spouse, adult son, adult daughter, mother, and father all live together and work, it’s averaged into this calculation.

What has this led to? A few things. Tenants transitioning out of more expensive, city areas to less expensive, rural areas. Homeowners put their basements for lease and have a much easier time finding tenants. An increase in investors and Airbnb arbitrage/hacking.

Every average American has a typical set of expenses and budget. Here’s a general overview of something you would expect on a monthly budget:

Rent (or Mortgage)
Car Insurance
Groceries
Utility Bills
Cell Phone Bills
Student Loans
Child Care Expenses
Pet Costs
Vacation/Travel Expenses
Health Insurance
Monthly Memberships (Gym, Netflix, etc.)
Donations

The one more important item from the list is always Rent. Prior to covid, Rental Prices would go up anywhere from three to five percent annually. Most of the time landlords would just leave it the same if they had a great tenant. Between 2019 and 2023, Rental Prices have really surged.

Moving to Cheaper Areas

One new trend going on post covid is tenants becoming something known as digital nomads. This is caused by the large increase in remote jobs that are available thanks to the amazing updates in online technology. Just look at Microsoft Teams. Pre-Covid, it was barely used for certain companies that had meetings between their offices coast to coast. Today, everyone uses Microsoft Teams, Zoom, or another digital platform to have their meetings, from their couch at home.

Basements for Rent

Putting your basement for lease was something going on for a while. But it wasn’t the norm. Today, if you buy a house with interest rates at nearly 7% and expect a monthly payment between $3,000-$4,000, be prepared to put your basement up for lease. This is also known as house hacking.

By putting the basement for lease, you can practically cut your mortgage payment in half. Due to the number of tenants that are struggling to find a house with their budget, it’s much easier to find a tenant that leases your basement. Think of it like your single-family house or 3-4 level townhouse is an apartment building. You live in one section of the building, and your tenants live in another section of the building. Of course, you must do your due diligence and check on their credit, income, background, and references to make sure they will not just pay the rent on time by also take care of your property.

With the surging rental prices, especially in the more saturated areas, most tenants are left with little to no options. Before if you were renting a nice single-family house and the owner decided to sell after 10 nice years, but your income has stayed flat, you might just have to downgrade to an apartment or a basement. This is all thanks to inflation.

Investors/Airbnb Arbitrage

Another major issue leading to Surges in the Rental Market is Investors buying our Inventory. It really depends on your area, but if you’re in a saturated market where either tourists can come, or if it’s full of large corporations where companies would want to send their employees for meetings, you will likely see an influx of properties being bought out for Airbnb use.

By having an Airbnb incoming producing property instead of a lease on the property, you are getting rid of the fixed rate for a fixed term, and instead adding a little risk but for a significantly higher return. There are proven studies where Airbnb units generate three to seven times the monthly income compared to the normal lease rate depending on where the property is located in the ongoing market.

These days a lot of Investors do not even have to purchase properties. They simply get the owner to sign the lease at a fixed price, make sure the contract stipulates they can Airbnb sublease it, and generate great income through Airbnb.

Airbnb Hacking is another form. House hacking is simple, where you live in one part of the property and cut the rent or even live for free thanks to the income-producing part of the property. Whether it’s a 3-level townhouse or a duplex. Airbnb hacking is pretty much the same thing, it’s just replacing a fixed income amount with a volatile amount that can be significantly higher.

Inflation will continue to surge and is not going to ease. The best way to control it is to control your own income and try to see ways you can control your expenses. Some expenses will always be fixed such as Rent, Utilities, and Car Insurance. However, other expenses aren’t even necessary, there are more of a luxury and all it takes is a life adjustment and that goes a long way. It’s like building the habit of going to the gym. Takes one small step and commitment, but you will see results.