How Real Estate Investing (REI) Protects You Against Inflation
TL;DR - Real estate investing provides a long-term solution to short-term inflation.
If you’ve been keeping up with the housing market, you might be wary of investing right now. Housing prices are up, and it can seem hard to get a deal. But! There’s a reason for this. Inflation.
This “transitory” period of inflation has made your dollar worth less. Yet, there’s still one great way to still make money right now. You guessed it - real estate investing (REI).
How REI Protects You Against Inflation
The Current State of Inflation
Inflation is practically guaranteed in our society. It’s always on a steady incline.
Our government prints more money when we aren’t spending enough. This keeps money flowing and businesses going.
However, doing this also lowers the value of our currency - the US dollar.
Classic supply and demand. When there’s more of something, it’s less valuable. The same goes for the inverse.
The Consumer Price Index (CPI), a measure of inflation, has increased 5% in the last year - from a recent report by the US Bureau of Labor Statistics.
This means that your savings and investment accounts need to generate a 5% return on investment (ROI) to keep their value.
The last time inflation raised this much? 2008 - when now-illegal lending practices led to a housing market crash.
Yeah...
Not what you want to hear.
But! There’s a way to protect your money and investments long-term.
It’ll help you ride out this wave of intense inflation and come out on top when it’s all said and done.
REI. Real estate investing.
Real Estate Can Be Your Hedge
A hedge, in the finance world, is defined as: “a contract entered into or asset held as a protection against possible financial loss.”
So, why should you use real estate as a hedge?
Now that’s a good question.
Property Value Increases Over Time
Here’s the thing - property value, just like inflation, is almost always on a steady incline.
This means that no matter when you invest in real estate, you’re bound to make some gains.
This is especially good news in the current inflation period we’re experiencing.
Back in 2008, a majority of the homes that crashed in value were able to get back to pre-crash prices in less than a decade.
So, in addition to being almost guaranteed monetary gains, you’ll also be protected in the case of a market crash.
Unlike stocks - which are tied to a business that can fail - real estate offers a long-term plan for protecting your investments.
Rent Increases with Inflation
A major benefit of investing in real estate during inflation is rent.
This is because rent prices increase as wages do.
Inflation leads to wage inflation, which is then reflected in rent spikes. So, sure, you might be paying extra to invest during inflation.
But you’ll also be making that money (or more!) back through inflated rent rates.
Multi-family homes are one of the best investments if you’re planning on renting out your space.
Why?
Well, individual rental units typically renew leases every year.
That means you get to keep your rent prices competitive each year.
Has everyone in your city received a higher salary or wage, causing rent prices to double in value?
You can match those new rental rates, content with your diversified investment portfolio.
Mortgages, Debt, and Inflation
So, inflation has an interesting relationship with debt. This is especially true when dealing with real estate.
The loan-to-value of any mortgage debt lowers as a home increases in price over time.
You can think of this as an incentive to improve the value of your property.
What does this mean for you?
The equity on your property will continue to rise, while any fixed-rate mortgage payments you have will remain the same.
Essentially - you can buy a home, watch it rise in value, and then sell it for a profit. While paying less on your mortgage.
What’s Holding You Back?
As you can see, investing in real estate during an inflation period is one of the best decisions you can make.
Real estate shelters your investment money and multiplies it over time.
More than that, it’s a hedge for you during a period of uncertainty.
How We Can Help
Does investing in real estate during an inflation period intrigue you? Would you like to learn more? We’d love to be of value!
At Undoor, we pride ourselves on teaching new and experienced investors how to maximize their gains with minimal stress. Our goal is to help you fall in love with real estate and real estate investing. What we’re most passionate about is maximizing investment gains for people like you.
Do you want to get key insights and advice that’ll help you get ahead of the game? Don’t hesitate to contact us for any and all real estate wants or needs.