Monday, October 5, 2009

Inflation adjustment clauses in leases.

Ever since the "stimulus" bill was passed in February by Congress, we have been waiting for the inevitable inflationary results. We do not know how bad the inflation will be. We do not know how fast the government will force the new money into the economy.

In any case, real estate investors should prepare for the worst. If you own property and lease it to tenants, it would be wise to include a clause in your lease that allows the rent to be adjusted to keep pace with inflation. Otherwise, you will see your expenses skyrocket while your rents will be locked in by the term of your lease. This is especially true in commercial leases that last longer than one year. Over the course of a year or more, inflation could skyrocket more than we have seen in our lifetimes, depending on how fast the government lets the new "stimulus" money percolate through the system.

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