Inflation and Rent Bumps

The only people who think inflation is not a problem is the government. I think the government says inflation is something like 4%. Unfortunately if you really live life on the edge like I do and eat, drink, pay your electric bill, and fill up your wife's car - you know really discretionary things like that, you know inflation feels like it's about 40%. Without getting into financial jargon, $1 today is worth a lot less than $1 last year.

This brings me to my point on having rent bumps (or scheduled increases) in your rental property. You should be highly worried about inflation if you are in any type of investing other than triple net lease properties due to property management expenses. However, if you own a NNN property the tenant is paying everything, so you don't have to worry. However, you still need to make provisions for rent increases due to your personal cost of living going up or your company's overall expenses going up. Rumor has it, secretary's like raises every now and then.

Here is what the CREI say's about inflation:

The Inflation Trap. At one time, single-tenant leases were structured with flat income for 25 or 30 years, and then had a series of options at drastically reduced rent, such as 2 percent of the property’s value. The theory was that the loan would be paid off by then, so the landlord’s spendable income would not be reduced. But inflation made this a nightmare for owners. When income was compared to current rent schedules, properties only could be sold at tremendous price reductions.