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Inflation is sitting at a 40-year high and increasing globally. The after-effects of the Covid-19 shockwave plus increasing pressure from external events have left no industry unaffected.
With the growing cost of living and warning signs spread across the stock market, it's a challenging time for business owners and, indeed, the everyday American. It's hard not to get caught up in the panic, but the reality is that inflation comes with both positives and negatives for the property industry.
The most successful property management companies know they must steer the ship, provide guidance for their team and property owners, and, most importantly, retain clients. Therefore, clear communication and keeping an eye on costs are crucial!
In this blog, we'll dive into inflation and how it affects your property management business. We'll also deliver some key ways to reach out to your owner-clients to ensure they stay level-headed and thrive!
What Is the Inflation Rate?
Before looking at ways to prepare your owner-clients, it's essential to have a fundamental grasp of inflation and its impact on the marketplace.
Inflation is the increase in prices during a period, such as a month or yearly rate for goods and services. The percentage figure tells you how quickly prices rose during that period. A great way to think about it is the decline of a currency's "purchasing power"—or how much less you can get for your dollar now versus in the past.
This is in contrast to "deflation," which occurs when your purchasing power is more robust, and the prices of goods and services decrease. A classic inflation measure is the "Big Mac index," which contrasts the cost of a McDonald's Big Mac globally compared to the past. For example, a Big Mac in the United States costs 40% more than it did ten years ago, a clear measure of inflation over time.
Other ways to assess inflation include reviewing the cost of oil, cost of living, and growing rent prices. While it may seem alarming, inflation is not a net negative for the rental property industry (depending on asset classes) and can bring some positive outcomes for property owners and property managers.
What Happens When There is High Inflation?
As discussed, during periods of high inflation, prices go up, and the power of the dollar goes down. However, inflation has some other social and economic outcomes. Some of these include:
- Supply chain disruption: Distributors cannot keep up the supply to match the demand of a particular product. Imagine the empty supermarket shelves at the peak of the Covid-19 crisis for hygiene and cleanliness products. This is an example of supply chain disruption.
- Port crisis: This can be linked to supply chain disruption. Port crises occur when a 'pile up' appears at the ports. Compounded by labor shortages, there is essentially a traffic jam at the docks, meaning a slower supply of imported goods into the market.
- Chip shortage: Although it may not seem obvious, a global chip shortage is a clear sign of high inflation as various industries, from car manufacturers to video game console producers, have slowed significantly.
Now let's look at some of the impacts on the property market and how you can best prepare your owner-clients for the effects of inflation.
Your Four-Point Guide to Preparing Owner-Clients For Inflation
The first question you may be wondering is, "is property management profitable" during periods of higher inflation? The answer is yes! So don't start ringing the alarm bells just yet.
That said, it's essential to keep your property owner-clients informed and show that you are thinking ahead and managing the changes. For this, we've compiled four fundamental changes that impact the property industry and property management services.
By preparing a letter, email, or video highlighting the following fundamental changes and sending them off to your owner-clients, you'll best prepare them for what's to come. For additional help, it may be advisable to solicit the assistance of a real estate management consulting service that can help you navigate the murky waters of inflation while maintaining property management success.
Point 1: Expect Higher Cost of Services
In the first instance, it's essential to inform your owner clients that the cost of services will generally increase. Because of this, they can expect to pay more for vendors and tradespeople. As a result, everything from a garage door installation company to painting services will cost more.
Point 2: Prepare for Higher Costs of Goods
The next step is to touch on the higher cost of goods and capital items. It can be a good time to talk with owners about the timing of purchasing a new property to add to their portfolio during high inflation vs. waiting until costs settle down again.
In your message, inform them that the general price of parts and materials has increased. Things like wood, paint, and even cleaning supplies have all risen. However, you can also remind owners that although inflation may be high, you are working hard to maintain budgets and find the best costs (without sacrificing the quality of goods or services).
Point 3: Expect Longer Wait Times
As a property management company, you probably already know that vendors are becoming increasingly harder to find, with longer waiting times to accomplish tasks that every property needs (like repairs and maintenance). Because of this, the need to be organized and on top of things like appointments and meetings cannot be understated.
Make sure your owner clients are planning well in advance and communicating effectively. Assure them you are also planning ahead and mindful of extended lead times while minimizing the impact on their goals or bottom line.
Point 4: What to Do About Rent
With inflation comes a general increase in the cost of the rent. Since real estate inflation often means the market is less ideal for buyers, there is an increased demand for rental properties. Therefore, these first-time homebuyers are delaying making the big move and opting to rent for a bit longer. In addition, this also means there is less competition in the market (fewer investors).
Encourage owners to price rent fairly for tenants, thus building good faith and longer-term tenant relationship. However, it's also important to find the balance between ideal rates and the income needed to keep clients happy.
Retaining Clients During Inflation Doesn't Have to Be Difficult
While inflation poses unique challenges to the property management industry, it's certainly not the be-all and end-all of your property management success.
Don't let inflation put you off from doing what you do best! Clear communication and touching on the key points outlined above are crucial to maintaining ongoing relationships with your owner-clients. It also shows you care and are on top of the shifting landscape.
For additional assistance in preparing for this unique challenge, contracting the services of an experienced property management consultant can help you devise a tailored plan to ensure your company is managing effectively during these periods of inflation. We're always ready to lend a helping hand at Real-Time Consulting Services. Book your free consultation today!
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