There’s a lot going on in this crisis. There’s a lot of stimulus happening, we got the PPP, we got the EIDL, we got an extension and unemployment and all of that was done with a purpose, to keep the economy flowing to help households, to help businesses, to stay afloat and stop the inflation.
One thing that everybody seems to ignore is what’s going to happen to the value of the dollar. It’s a simple economic law, the more supply you have in the market, the less it’s going to be worth. What do you think is going to happen to the value of the dollar? The more dollar bill we have in circulation, the less it’s going to be worth.
That is not the only problem. Another issue that can come out of this is inflation. Now, you might be wondering what exactly is inflation?
Let’s just put that in an example. A very simple example of you going to the groceries and trying to get some tomatoes. You have exactly $2 and in pre-crisis times you were able to buy six tomatoes with that money but now, during post-crisis times, with all this stimulus going on, with all the dollar bills flowing freely in the market, you’re going to take the exact $2 and you’re going to go back to the same exact supermarket and guess what? Instead of getting six tomatoes, now you’re going to get only three tomatoes. You are reducing your purchasing power as the inflation keeps growing.
Now, you might probably be thinking, “Okay that’s interesting but what does it have to do with me?” This has a lot to do with real estate and with you and your finances.
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Inflation: What will happen to your tenant?
Your tenant is on a fixed income, they’re making an X, Y, Z amount of money and that doesn’t change, your rent doesn’t change but everything else around them is changing. That means the cost of their groceries are changing, their gas is changing, their utility bills are changing everything around them is changing, mainly because of the inflation. That means the quality of their life is going to start decreasing.
It’s only a matter of time before they will have to choose between going on a diet or having to pay the rent. That’s something that you as a landlord have to take into consideration. You have to think about that because sooner or later they might not be able to pay for your rent.
Inflation: What can you do in this situation?
One simple thing is just to simply give them concessions. It’s something that some landlords decide to do with their tenants. If you are a good tenant, your landlord is going to start caring about you because you have been paying on time and you take care of his property.
That’s in essence what you should also consider as well. This is not something about you losing out or your tenants winning in a crisis, everybody ends up losing. It is up to you and your tenant to figure out a good dynamic where the two of you wind up not losing much because you both will be benefiting from one another. You will continue to collect your rent and your tenant will continue to have a home to live on.
The negative impacts of this situation
This situation doesn’t just impact your tenant, it also impacts you as a human being. Why? Your cost of living is also going to go up. Yes, you might be able to collect rent, you might be able to maintain your job but your utilities, your groceries, everything else is going to start changing around you as well.
Will house prices go down? Yes. There is a possibility that the house prices could start going down but that doesn’t mean that you’re going to go on a spending spree because you want to make that money last so you can go ahead and buy more properties and benefit you in the long run once the economy starts getting better.
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