Many investors regard real estate as one of the best strategies to hedge against inflation because property prices over any given decade tend to trend upward. This article will discuss why inflation occurs and how it can affect your real estate investments.
What is Inflation?
The economy is dynamic, and many variables will impact inflation. However, at its core, inflation is a measurement of the increase in prices of goods and services over a period of time, including real estate costs and rent prices.
Inflation is influenced by the amount of money circulating in the economy. When more money is available, prices tend to rise, but there is also the expectation that prices will always go up eventually. A more straightforward way to think of inflation is that the dollar’s purchasing power degrades over time.
Real estate creates a reliable buffer against inflation because property prices increase over the long term. Investors also gain an advantage through cheaper interest rates and the ability to increase their yields by rising rental prices in line with inflation and supply and demand.
Why is Property a Reliable Asset Against Inflation?
Real estate investment is a long-term strategy. Property prices can fluctuate in the short term like any investment vehicle. However, holding an investment property over the long term is when the magic really happens.
As property prices rise, the original mortgage repayments remain reasonably stable. Of course, the Fed can make repayments more or less affordable if it decides to get aggressive with its interest rate adjustments. Even so, your repayment responsibilities will tend to balance out over the long term.
Rising property values are often matched by increases in rent. Should you keep a property for ten or more years, the value of the rent you can charge may have doubled, but your mortgage repayments will be similar to when you first bought the property. You will have effectively increased your rental yield two-fold or more.
Such increases in yields are difficult, if not impossible, to match in other investment vehicles. Plus, you also have the advantage of a significant increase in equity, as property values can often double or more over a decade.
In short, a long-term real estate investment strategy is an excellent hedge against inflation.
Investors can take advantage of lower interest rates to purchase property that will increase in value over time, often at higher rates than inflation. They can also pass on inflationary costs to tenants in the form of higher rents and profit from capital gains in property prices over the long term.
About Terry Chved
InvestWithTerry.com have been actively involved in the GTA area real estate investing for a number of years. Our mission is to provide quality housing for quality tenants, while at the same time providing an above average return on investment (R.O.I) for our investor partners and ourselves. It is truly a win-win-win way of investing!
Terry offers his investor partners hands-free investment opportunities. If you are interested to learn how to earn an above-average return on your investment, backed by a solid asset, and without the hassle of being a landlord, please contact Terry.
For more information about Terry and his investment program, please call (647) 228-1035 and email him at terry@investwithterry.com or visit https://investwithterry.com/
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