Simple Question about Rent Increases vs. Inflation

[Jason Merchey]

I don't think I know the answer to this question. SOmeone help me out: if you assume that you can raise rents 3% a year on your projection, should you be assuming that a) you will see 1-10% increases in insurance, some possible increase in property tax, and due to inflation, a 2-4% increase in normal years on everything from roofs to HVACs to paint and carpet? Thus, is it not inappropriate to assume that your NOI is going to increase by 3% a year for the next however many years? It would seem to me like using an eyedropper to drip water into your mostly full cup of water at the rate of a drop per second - while there is a pinprick on the bottom of the cup that loses a drip every second.

[Jon Klaus]

"I don't imagine there will ever be a time when income is increasing and expenses aren't...though that would be nice!"

We had some version of this over the past several years. Rents increasing, while acquisition prices and cost of money (interest rated) fell.