It’s no secret that prices of goods and services in just about every category are raising around the country due to inflation. Plus, with the world’s richest man, Elon Musk, advising now is the time to hold on to tangible assets – real estate investment is becoming top-of-mind for many.
Directly relating to a decrease in the purchasing power of money, rising inflation can be caused by a number of factors. Whether it’s from supply and demand or various economic factors, the blunt definition of inflation means the value of a person’s hard-earned dollar is going down. This is why it’s imperative to have a strong strategy in place that not only protects your assets but positions your finances and holdings to remain intact until the economy bounces back to a more regulated pace.
Here's why prioritizing real estate investment during inflation can be beneficial:
1. Protecting the Value of Your Money
Existing investors are the ones that are poised to reap the biggest benefits when inflation is high. Housing prices are continuing to skyrocket all across the country as the average home price was hovering around $404,000 in Q4 which is an 13% increase from just last year. This market allows you to pay the same fixed rate even as the property value steadily increases. Also, with financing rates currently remaining at an all-time-low, investors have a strong opportunity to maximize the return on their investment.
While inflation is ideal for investors who already own real estate assets, those looking to get in while the getting is good should not be discouraged. Although the price of housing is unfavorable, the longer you wait to enter the market can mean more money lost over the long term. Plus, with the FED announcing it will raise interest rates a quarter percentage for the first time since 2018, there is still time to take the investment plunge.
2. Using Real Estate as an Inflation Hedge
Owning a rental property as an investment allows investors to pass along the rising costs of inflation to the tenant in the form of a higher monthly rent. According to a recent report released by Rent.com – the national average for a one-bedroom is $1,684 and $1,997 for a two bedroom.
This means that due to the current influx in demand for rental homes, investors have the opportunity to not only have the tenant pay the fixed mortgage on the home but also add a surcharge to the total that puts money back into the investor’s pocket.
Final Thoughts
Whether it be stocks and bonds or gold and equipment, there are a multitude of benefits to investing in tangible assets when inflation is high. Although real estate may be a bolder and more volatile investment as rising financing rates and supply and demand constantly shift the market, real estate will always make a great asset to diversity any investment portfolio.
While no investment strategy is a guarantee, real estate can allow investors to help ride the tides when it comes to raising and falling inflation, without loosing the value of their hard-earned savings.