Picture this: you decide to start your journey to financial independence by investing in real estate. After scouting for a high-value neighborhood and sourcing the best method of financing for your new home, you realize the property taxes are quite high, forcing you to either charge exorbitant rental prices or cut your expected profit margin.
This example shows how local policy changes can significantly shift the property market and affect how you run your rental business. It would be wise to become familiar with these policies so you can effectively leverage them when making major business decisions.
The Role of Local Policy Changes in the Property Market
Impact of Zoning Changes on Property Values
Pay attention to zoning changes in neighborhoods you invest in, as they can signal an imminent increase or decrease in property values. For instance, if the government places limitations on the number of residential houses that can be within a particular area, it would limit the existing rental properties, and could even slow down property appreciation. On the flip side, relaxed zoning laws give developers more freedom to build high-density housing, potentially increasing property values in the long run.
Rent Control Ordinances
Find out if your neighborhood has rent control policies that can put a cap on how much you charge tenants. It’s common for some jurisdictions to set limits on the maximum amount landlords can charge, how frequently they increase rent, and by what percentage. Thus, it would be wise to double-check if your property falls under areas with such strict laws to avoid hiking your rent beyond the legal limit.
Despite being set in place to protect renters from landlords who want to charge exorbitant prices, rent control policies inevitably affect the local rental market. For instance, strict rental policies can discourage real estate development because of the cap that makes it difficult for investors to fund what they spend on newer buildings. It can also cause property neglect, where property owners avoid making upgrades or even making routine repairs because of limitations on rent increases. However, Bay Property Management Group can guide you on setting fair rental pricing to comply with local policy changes.
New Building Codes and Permits
Keep up with local changes to building codes and permits to avoid unnecessary legal fees. With new studies on materials, energy efficiency, and accessibility, it’s common for states to make changes to their building codes to ensure the safety of their inhabitants. As a result, you may have to double-check before you settle for a particular type of paint or HVAC system, to ensure you follow the proper rules. However, these codes can indirectly affect property markets by changing the rules landlords have to follow. For example, if an upscale neighborhood limits the number of residents that can stay in a home at a time, it can discourage people from sharing apartments if they can’t afford it alone. That could force you to change your target market from young college students to working professionals with more disposable income.
How Can Landlords Mitigate Local Policy Changes?
Identify Potential Tax Deductions
Leverage tax deductions when you can to get the most out of your rental property. While Rent control tends to impact landlords by limiting the amount they can increase for a year, there are other tax deductions you can take advantage of to offset the financial impact. Most areas allow landlords to shave essential expenses like repairs, utilities, employee wages, and routine maintenance costs off their taxable wages. However, many property owners are unaware that you can also claim travel costs. In other words, expenses like gas for your car, or plane tickets and hotel accommodation for out-of-state inspections can qualify as tax deductibles.
Be Updated About Tax Credits for Energy-Efficiency Improvements
Switch to energy-efficient light bulbs and appliances to save more money through tax credits. If your area qualifies for tax credit reclaims through energy-efficient policies, you can significantly offset your routine expenses by switching to more eco-friendly appliances. In other words, you not only get to save the planet, but you can also save some cash. There’s also the added advantage of attracting environmentally conscious tenants to your rentals, which can help reduce vacancies and increase your rental income in the long run.
Conclusion
Understanding how local policy changes affect the real estate market can help you make better decisions concerning your business. For example, when zoning laws are overly strict it can dissuade investors from building more houses in an area, causing property prices to stall. Likewise, a stiff cap on rent control policies can force landlords to look elsewhere for a property that earns them a decent profit margin.
Considering how such policies can cause significant changes in the property market. Property owners need to form strategies to mitigate the worst of it. Thus, it would be wise to know what you can claim as tax deductibles and switch to energy-efficient appliances to claim tax credits.
