Inflation can lead to a lot of financial burden as a result of consumer goods becoming more expensive–from clothing, to food, gas, and more.
That said, real estate can be a great investment during these times of high inflation for several reasons.
Let’s run through some of the most notable advantages that great real estate investments can provide during times of high inflation.
#1. Rising Home Values
Rising home costs are tough on home buyers, but great for land and home owners!
Property values tend to increase during inflation due to rising build costs and competition in the housing market
Another thing that tends to increase during times of high inflation is rent. For example, some cities saw a rent increase of up to 35% during 2021.
To help keep up with the rising costs of inflation, landlords have the opportunity to adjust how much they charge for rent.
As a result, those with fixed-rate-mortgages can bring in additional rental income to help adjust for higher costs of living.
#2. Lower Loan-to-Value Mortgage Debt
As home prices rise with inflation and supply and demand, those with fixed-rate mortgage payments are able to lean into their investments as a way to help combat the effects of inflation.
Here’s how:
- 1. The equity you have in your home increases over time.
- 2. Your loan-to-value mortgage debt becomes lower as a result.
As the price of your home increases, this means your loan-to-value mortgage debt decreases because you have more equity in your home.
#3. Demand for Housing Continues to Increase
As interest rates go up in response to inflation, this can make it harder for would-be-home buyers.
When these potential buyers are not able to finance a purchase, the demand for rental homes increases.
Those who are invested in rental properties oftentimes can take on these higher interest rates and adjust rent in accordance with inflation and the current housing market.
Real Estate Can Be An Excellent Hedge Against Inflation
Unfortunately with inflation, there are a lot of things that are just unavoidable–like price hikes for consumer goods, for example.
That said, good real estate investments can help hedge against inflation.
Property values tend to rise during inflation, and this lowers the loan-to-mortgage debt as equity in the home increases.
As property values increase along with demand for housing, landlords with fixed-rate mortgages can bring in additional rental income by adjusting to the market.
And as interest rates increase combined with inflation, the demand for rental homes can increase as a result.
