Yesterday Federal Reserve Chairman Jerome Powell warned of the possibility of impending inflation. This resulted in the stock market immediately falling sharply as fickle investors began panicking about what many have feared for months. The combination of ridiculously low interest rates, repeated Covid stimulus checks, and the pent-up consumer demand that will greet a reopening economy could create the perfect storm for inflation. It is only logical that at some point borrowing will become more difficult and expensive which will lead to the onset of some level of inflation.
So, the next question that real estate investors will ask is whether that is always a bad thing? The answer may surprise you. Simply put; No! Of the many effect’s inflation has on the economy and our daily lives, several of them can lead to positives in the rental real estate market.
First and foremost is the raising of mortgage interest rates. While this may be devastating for the mortgage brokers at the country club, it is great for landlords. Higher rates mean higher monthly payments on purchases. This prices many marginal buyers out of the market and increases the pool of renters. An increase in renters puts an obvious strain on demand, which leads to higher rents. Since many rental properties in Detroit are owned free and clear this is a pure gain in ROI. Long term it is also a win when inflation subsides, as rents generally do not decrease.
Another result of inflation is the increase in the cost of living. As prices for goods increase, so do wages for workers. As compensation goes up consumers are typically willing to pay more for quality rental properties. A strong working middle class that is shut out of home purchases by high interest rates should be music to any landlord’s ears.
Whether or not inflation grips the U.S. economy remains to be seen. With or without it, the rental market in Detroit is as strong as ever. If you are looking to diversify your investment portfolio to include Detroit rental properties, Midpoint Real Estate Services can help. Reach us today at 313-659-1700 or online at info@midpointdetroit.com.
Matt G.
