6 Things Landlords Need To Do
During Rising Inflation
If you are a landlord and you are worried about a big inflation increase, firstly do not panic. Secondly, read this article because there are certain things that landlords need to do during rising inflation. And we shall discuss them here. Inflation is not all bad for investors however, some knock-on effects can actually be quite positive.
What does higher inflation mean?
Inflation is simply the difference in cost of goods and services this year, when measured against the cost of the same goods and services last year. The percentage increase or decrease is inflation. The result of higher inflation is that your pound coin can buy less today than it did last year. This means that money is worth less, it is devaluing as inflation goes up.
The concern for landlords is that the interest rates on lending could go up and the additional strain on tenants could impact peoples’ affordability to rent. An additional problem may come from an increase in materials and labour costs that could place a strain on flip and development calculations. However, as money decreases in value so too the value of debt decreases. The devaluing of money in other peoples’ savings accounts could also present a great opportunity for Angel Lending.
So what are the 6 things landlords need to do during rising inflation?
1) Stay in control
We cannot over-emphasise the importance of staying in control of the current situation. While you cannot control what is going on around you, you can control how you react to it. Staying in control will involve paying very close attention to the individual mortgage rates, expenses and cashflows within your property portfolio. Ask yourself these questions: How will my cashflows be looking in five years’ time? If a property is underperforming today, could it become a liability in the future?
2) Utilise fixed-rate mortgages
Where possible, moving your mortgage lending onto fixed-rate mortgages can provide an element of security and predictability as inflation increases because the rates will be unaffected. Of course there will be the potential of fees and early redemption charges to consider, so always seek the advice of your mortgage broker and carefully track each product’s expiry date. A good broker will be able to ensure that you get onto the best products that are available for your needs.
3) Check your leverage
As interest rate changes are very difficult to predict, be cautious with how highly leveraged your portfolio is. A highly leveraged portfolio is one with a higher than average percentage of borrowing against the properties. The higher the level of borrowing, the smaller the buffer zone if interest rates rise sharply.
4) The cost of refurbishments
Any rise in inflation will also impact the costs of materials and labour for refurbishments and developments. Increased timescales due to a lack of materials or trades peoples’ availability will also be a large factor. Hence it is advisable to err on the side of caution. As many have seen in recent times, project costs can quickly spiral which could erode your profit.
5) Tighten your due diligence
Being extra careful when you research your areas and properties will help to mitigate the increased risks of a changing economic balance. There will be no harm in being tighter with your calculations and always pressure test the cashflow for every property deal.
6) Avoid voids
Obviously having void periods when a property is untenanted can be costly. Therefore do your best to retain solid tenants. In extreme circumstances it may require reducing the rent for a period, or allowing them to pay the deficit at a later date. However, this will be worth it if you know they will remain in the property rather than risking changing a tenancy during a difficult time.
Running a tight ship
As you can see from the above 6 things landlords need to do during rising inflation, a lot of it comes down to running a tight ship. Being careful not to let things slip or lose sight of your portfolio’s performance will be especially beneficial during a period of rising inflation. Staying in control will also ease your nerves and help you to remain more relaxed and clear thinking, rather than panicking and running for the hills.
For some further insights into future-proofing you assets, you may enjoy a podcast with Asset Academy trainer, mentor and expert in implementing systems for success, Russ Dyble. In this episode Russ shares his wealth of knowledge about the importance of forming good habits, crisis management, minimising risks and how to meet the changing demands of tenants. You can listen to the episode by clicking here.