By Christopher Miller, MBA

This month, I’ll be talking about inflation – a topic that was inspired by a late drive-through visit last night. I was driving home late after 10PM and wanted to grab a drive-through dinner. I have been trying to eat healthier recently, but food options can be more limited late at night. I hadn’t eaten at Carl’s Jr. in years, but remembered that they do have chicken sandwiches – healthy enough to somewhat make up for fast food, perhaps?

I ordered a chicken sandwich combo, and my total was $18.11! Turns out that the food is much worse than I remember, too – the chicken was poorly cooked and rubbery, and the French fries are best described as “uninspired.” The most shocking part of this was that a hypothetical outing to Carl’s Jr. by my family of 5 would cost close to $100 – for bad food! That is the effects of inflation affecting me in real time. Thus, I’ve decided to focus on the effects of inflation for this month’s article.

Inflation is Bullish of Real Estate

Inflation can be good for us real estate investors. Inflation is essentially the devaluation of the dollar: One dollar doesn’t buy what it used to. Therefore our real estate, a product of limited supply, can potentially go up in value – it takes more dollars to buy the same property.

I have written extensively about how important it is to keep your rents as high as the market allows: investment property is valued based on the income that it produces, so higher income will give you a higher value while lower rents can leave you “stuck” with lower value. Additionally, we need to raise rents regularly as inflation will reduce our buying power every year. Market rents will typically rise with inflation – leaving you room to raise your rents. (If your tenant shops around, he will find that comparable properties are costing more as well.)

Rent Control Limits Our Ability to Benefit From Inflation

Rent control limits our ability to raise rents to keep pace with inflation. As expenses – insurance, utilities, maintenance, cheeseburgers for our families – rise; we need the ability to raise our rents to pay these expenses. The state of California’s rent control currently allows landlords to raise rent by the amount of inflation (CPI) plus 5% – but limited to 10%. For now, (California is constantly trying to limit those increases further), California landlords can stay ahead of inflation if they do a good job of making those annual rent increases.

If you own in a city that piles additional rent control on top of California’s, you could have a problem keeping up with inflation. For example, the City of Los Angeles’ new (effective July 1, 2026) allowable increases are 90% of CPI with a maximum increase of 4%. Los Angeles landlords are therefore forced by law to suffer at minimum a 10% decrease in their purchasing power every year. (Perhaps even more – note that in June 2022, the prior 12 months’ inflation rate was 9.1%, according to the U.S. Bureau of Labor Statistics.)

According to Investopedia, U.S. inflation averaged 3.92% annually between 1966 and 2026. If inflation continues to average that over the long term, and rent control says you can only raise rents 90% of that amount; how long until you start to notice that decreased purchasing power?

Exchange Out of State for More Freedom and Potentially More Income and Growth Potential

Many of my clients are fed up with how hard the government makes it to be a landlord here in California. I work with them to sell their assets here and complete tax-deferred 1031 Exchanges to other states. We look for states that 1. Are growing in population faster than California and could provide more income and growth opportunities 2. Are business friendly and welcome landlords into their areas 3. Understand that rent control exacerbates the very problems it aims to fix: more restrictions on housing creates less housing, not more.

Over the 25 years I’ve been helping real estate investors, I’ve learned to focus on 1. Apartment properties in growing metropolitan areas and 2. Single Tenant, Net Leased properties – whole ownership and partial ownership. My investors can sell their California properties and exchange into another state without having “management boots on the ground.”

If getting out of California and seeking income and growth potential in other states makes sense to you, call my office at (877) 313-1868. I’d love to talk about it with you.

Christopher Miller is a Managing Director with Specialized Wealth Management in Tustin, California and specializes in tax-advantaged investments including 1031 replacement properties. Chris’ real estate experience includes work in commercial appraisal, in institutional acquisitions for a national real estate syndicator, and as an advisor helping clients through five hundred and fifty 1031 exchanges. Chris has been featured as an expert in several industry publications and on television and earned an MBA emphasizing Real Estate Finance from the University of Southern California. Call him toll-free at (877) 313 – 1868.

Securities offered through Emerson Equity LLC, member FINRA/SIPC. Emerson Equity LLC and Specialized Wealth Management are not affiliated. All investing involves risk. Always discuss potential investments with your tax and/or investment professional prior to investing.