RICHMOND -- Many landlords will raise the rent on their investment properties this year to make up for lost tax breaks, according to a report from the Virginia Real Estate Center at Virginia Commonwealth University.
Real estate professionals across the state who participated in the VCU study said they did not think investors will be willing to absorb the lost tax savings inflicted by the Tax Reform Act of 1986.
The study indicated that tenants in areas with high vacancy rates will get by with modest rent increases.
"The reported annual rent increases over the past five years across the state of Virginia indicate that the local markets have been quite favorable to real estate investors," the study said. "However, the projected rent increases for 1987 and 1988 are substantially lower than the reported rent increases over the past five years. This indicates that real estate markets will not be as favorable for investors in the near future, with the exception of Northern Virginia where real estate professionals still expect rather high increases for 1987 and 1988."
The conclusions were drawn from a questionnaire mailed out in the summer to 350 members of the Virginia Association of Realtors. Usable replies were received from 74 members of the trade group.
The study noted that the individual circumstances of each investor will be important in determining how attractive it will be in the future to own apartments or commercial office buildings. For example, it was pointed out that investors who actively manage their properties may be helped by the provisions of the Tax Reform Act.
For new investors, however, the study said reduced depreciation allowances and the elimination of special treatment for capital gains will make real estate a less attractive investment option.
As a result of the new tax regulations, the study said, it is likely that investors will be faced with declining values for investment property, lower returns on their holdings and an extra incentive to try to increase rents.