November 27, 2022 | Sexton Real Estate Group
When it comes to inflation, there are a few things you can do to protect your hard-earned money. You can invest in stocks, bonds, and other types of investments that tend to increase in value as prices go up. Or you can put your money into real estate – a tried and true way to ensure that your investment will stay afloat (or grow) during times of high inflation. In this article, we will discuss 5 ways real estate is a good hedge against inflation.
What Is Inflation?
Inflation is defined as a sustained increase in the general level of prices for goods and services. It can ultimately lead to a decrease in the buying power of your hard-earned money. It’s important to understand the implications of inflation on investments, one area that real estate has many advantages over other forms of investing.
Why Is Real Estate A Safe Investment Against Inflation?
Investing in real estate is one of the most effective ways to protect your wealth against inflation. The value of money can be eroded over time due to rising prices, but investing in tangible assets such as real estate maintains your wealth and guards against inflation.
Here are some of the many ways that investing in real estate helps protect you from the effects of inflation:
1. The Value Of Real Estate Appreciates Over Time
The value of real estate typically increases over time due to a variety of factors such as market appreciation, renovations or improvements to the property, and increased demand. The higher the appreciation rate on your real estate investment, the more you’ll be able to leverage your asset’s appreciation to counteract the effects of inflation.
- Invest in real estate and see your asset appreciate over time
- Counteract the effects of inflation by leveraging your real estate investment’s appreciation
- Enjoy market appreciation, renovations/improvements, and increased demand on your property
- Watch your money work for you as opposed to working for your money
Limit the amount of taxes you pay. The amount of money you get to keep after taxes is more important than how much profit your investments bring in. As a real estate investor, the IRS sees you as a business owner, which allows you to take advantage of many tax-saving deductions. As a rule, inflation raises tax liabilities since even though earnings grow along with the cost of living, tax brackets don’t fluctuate similarly.
2. Mortgage Payments Typically Remain Stable Even As Purchasing Power Declines
When there is inflation, living expenses go up while buying power goes down. How does this affect you? If you invest in real estate, the value of your home will probably increase even though your mortgage payment stays the same. Even if locking in a loan with a lower interest rate is essential for creating wealth during inflationary periods, adjustment restrictions may be able to protect even adjustable-rate mortgages from extremes in volatility.
3. The Cost To Borrow Money Stays Relatively The Same
Inflation also affects interest rates, but generally speaking, it is still far less expensive to borrow money than it was in the past. The cost of borrowing money to finance a real estate purchase is relatively stable because banks set their base interest rates based on market conditions, which can remain fairly constant despite inflationary pressures.
4. Real Estate Provides Long-Term Stability
Real estate provides investors with long-term stability because it is a physical asset that can’t be devalued by inflation. The value of real estate investments often increases over time, providing investors with an effective hedge against inflation and the ability to preserve their wealth.
5. Potential For Positive Cash Flow
The income generated from rental properties and investment opportunities can help offset the rising cost of living. The cash flow will increase over time as rents rise due to inflation, which can help to minimize any losses caused by increasing prices.
Is Real Estate A Good Investment During Inflation?
In a time of inflation, it can be difficult to figure out the best way to invest your money. Is real estate a good option in an inflationary environment? The short answer is yes, but there are several things to consider before jumping into the market.
Real estate can provide many benefits during times of inflation; it’s often seen as a haven against currency devaluation and can provide a steady stream of income from rental properties or capital gains from appreciation. Real estate is also viewed as an asset that won’t depreciate suddenly due to market conditions, unlike stocks or bonds.
- Real estate is seen as a haven against currency devaluation.
- Real estate can provide a steady stream of income from rental properties or capital gains from appreciation.
- Real estate is an asset that won’t depreciate suddenly due to market conditions, unlike stocks or bonds.
However, investing in real estate during inflation can be risky, and it’s important to understand the potential risks before diving in. Inflation can cause property values to rise quickly, meaning you may have to pay more for a property than its value. This could leave you vulnerable if the market crashes again. Additionally, if inflation continues to rise over time, it can be difficult to track your overall return on investment as the cost of living rises with it.
Before investing in real estate during a period of inflation, make sure you understand the risks and consider any potential returns if prices begin to fall again. It’s also important to calculate your overall return on investment by taking into account taxes, maintenance costs, and other factors that could affect the profitability of your investments.
Final Thoughts
Real estate is a safe and profitable investment that will protect you against inflation and continue to pay off for years. Of course, outside factors such as interest rates or the economy can affect real estate values but inflation is one of the key drivers.
Are You Looking to Invest in Real Estate in Northern California?
The top real estate agency in Northern California, Sexton Group Real Estate | Property Management in Berkeley, California is a boutique real estate company specializing in residential sales for properties throughout the San Francisco Bay Area. To better serve our clients we have three local offices, one in the heart of picturesque Berkeley, one near downtown Oakland and the third in the heart of historic Lafayette, California. The Sexton Group encompasses the essence of Berkeley’s charm, Oakland’s history and Lafayette’s family-oriented vibe all with a relaxed, down-to-earth nature. We are an amazing group of real estate agents whose wealth of experience spans more than 25 years in the industry. Looking to buy a home in Contra Costa or Alameda County? Contact us today for your free consultation!
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