As the cost of energy soars, or remains at the present high level, future Net Operating Income (NOI's) of investment real estate will begin to tumble.
If you are upset at the cost of pumping $4.00 per gallon gasoline into your vehicle just think of what communities now pay to fuel 20 or 30 safety vehicles per day.
Public safety vehicles,( police cars, firetrucks, municipal ambulances) operate 24 hours a day and 7 days a week.
Add to this the anticipated cost of heating (and cooling ) schools and other public buildings and facilities.
The domino effect of the increase in energy cost for all municipalities and states is staggering.
This anticipated, or real increase, will be past on to property owners in the form of increased real state taxes!
But it won't stop there.
Anticipate future increases in the cost of water and sewer costs plus a dramatic increase in the cost of snow removal will result. ( Snow plows and snow removal trucks are notoriously expensive to operate!)
The cumulative energy cost will negatively impact all investment property owners,in the near to short term future, as property expenses will rise dramatically taking a substantial bite out of the bottom line.
As the NOI erodes property capitalization values will decrease.
Some of these anticipated cost may be passed on to "some" tenants, who may pay same, or some may simply close shop and increase vacancy.
It's going to be a dicey six to nine months for many investment real estate owners except for those who have no, or very little, debt service.
Bill McInerney
Next: Reviewing an Investment Property P&L Statement in light of the recent higher energy cost.
How strong are your " escalation" lease clauses?
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