What Should Landlords Expect in 2022?
It’s the time of year when all businesses are planning and forecasting for 2022.
Clearly, it’s critical for all businesses to understand expected sales, expenses, etc.
And, if you are a landlord, you are a business.
Even if you own just one home, or if you own 1,000 homes, being a Landlord is being a business owner.
So, as we close the books on 2021, we thought we would provide you some basic guidelines on what to expect for 2022.
There’s some bad news, but certainly some good news as well.
1. Labor will cost more – It’s not secret. For a variety of reasons, it’s more expensive to employ people to do whatever you need them to do.
We’ve already blogged about the labor shortage that most developed economies around the world are experiencing.
This includes our local contractors, who are raising their prices to help retain their current employees and recruit new ones.
We’ve had several Clients experience some sticker shock when reviewing bids, and we don’t expect this to change much during 2022.
2. Materials will cost more – As I’m sure you’ve heard, our supply chain is under severe strain and inflation is on the rise.
Appliances now cost more.
Basic maintenance supplies (think toilet valves, hardware, etc.) now cost more.
While one single part won’t bust your budget, you’ll feel the cumulative effect in projects such as turnover or rehabs.
Again, sticker shock is happening and will continue to happen into 2022.
3. Projects will take longer – For the reasons we mentioned under #1 on this list, projects will take longer.
Contractors are simply struggling to both retain and recruit workers.
Couple that with very high demand and the result is that those quick turns that used to take 5 days are now taking 7 or even 10 days to complete.
I probably know what you are thinking… not the best news during the Holiday Season.
But, these market factors do have some silver linings…
4. Rents will rise – Here locally in Indianapolis, we’ve actually been experiencing rising rents for several years now – in spite of the global pandemic.
This will certainly continue into 2022.
I review every property that we place on the market, and I’m routinely surprised with how much rent certain homes demand.
We ALWAYS run a fresh comparative market analysis on every home that we place on the market (and renew) in order to ensure we’re achieving market value.
This is especially important during times like this.
5. Homes values should rise – While the value of your home won’t change your Profit & Loss statement, it will increase the bottom line of your Personal Financial Statement.
We’ve long preached that real estate is a long-term wealth building proposition.
The value of your home in 2022 should increase, as it’s done over the past several years.
In fact, Realtor.com just released a story on its anticipated hottest real estate markets for 2022 and Indianapolis came in at #4.
According to the story, Indianapolis should have an anticipated price growth of 5.5%, which is very solid for our area.
What do all these numbers mean?
Clearly, it’s going to cost more to be a landlord in 2022… both in terms of real dollars spent on labor and material and also in terms of higher vacancy costs due to the projects simply taking longer.
As we’ve mentioned previously, we’re working hard to hire additional contractors to help curb some of the additional time required for turnovers, and we’re always challenging our contractors to provide the very best pricing.
And while hiring contractors in this environment is challenging, we’re making some progress.
In addition, rising rents will help compensate for some of these increased expenses.
However, the biggest advantage for investors is that their assets should increase in value, which should more than compensate for the increased costs.
Using Realtor.com’s example, a $150,000 property should increase in value by $8,250 in 2022.
That’s huge, especially for multi-property owners, and further evidence that real estate should continue to be a great place to have your money in 2022.