How does inflation affect investor’s Build to Rent and Single-Family Rental portfolios’ ROI?

2 min read · Written By: May Galan, Senior Vice President, Association Management

Consumer price inflation rose to 7.5% in February 2022, the highest since February 1982. Soaring energy costs, oil prices, labor shortages, supply disruptions coupled with strong demand and now, a war will only fuel inflation more in the coming months.

As a result, consumers are changing their buying habits, companies are scrambling to attract enough workers, and first-time homebuyers are reconsidering and opting to rent instead. As soon as the Fed starts raising rates in March and beyond, homeownership is becoming less attainable and the demand for rental properties will grow. This is good news for investors.

Inflation, of course, is a double-edge sword for investors. Even though the demand for rental properties is increasing so is the cost of labor and supplies to build these communities and manage them. This is “not-so-good” news for investors.

Labor and supply shortages are not only extending completion dates for projects but exponentially increasing costs to complete these projects. Investors must now pivot from their originals projections of the Build to Rent ROI and mitigate the rising costs to build and manage these communities. As cost go up so must rents right? At first glance, this seems as positive news, but in turn, so will income taxes, property taxes, and property insurance. This can create a vicious cycle that includes higher vacancies.

ROI forecasts for Build to Rent communities are still very strong and attractive to investors and the upcoming months will certainly present new obstacles. However, with the right team in place to help mitigate these expenses, investors should be able to recover from the inflation hike coming this way.

Do you own BTR or SFR Communities? The right management company can help you increase ROI, mitigate risk, add value and resolve the day-to-day challenges of managing an association.