Don’t Fear Inflation If You Own Real Estate
SDC Ventures and Fairbrook Communities are on a mission to improve your life estate and monthly passive income through investment properties in real estate.
INFLATION: Why is inflation such a concern now, and how can you protect yourself from its negative effects?
What is causing this record inflationary period we are experiencing? Inflation is a naturally occurring economic effect that, for the most part, rises slowly and steadily as the economy grows. However, blame it on the pandemic or more specifically the rapid return to normal spending, in combination with the large federal economic stimulus plan and the estimated $2 trillion Americans saved over the past year. All of these factors together have unleashed a gusher of spending that sucked all of the products out of available inventory. And with factories lagging, demand is outstripping supply, thus causing a rise in prices.
How long will inflation last? The answer is vague, however, one way to make sure the answer doesn’t affect your life estate is to include real estate as a strong hedge against inflation. During inflation, one expects rents to grow as income and demand grow, thus, if you own real estate, your passive income grows alongside inflation. Private investors are not alone. Institutional capital and major real estate funds are planning ahead by shifting from short-term hold and value-add deals to a long-term hold for the foreseeable future.
Real estate also benefits from debt in inflationary times. As rents increase, so does the value of the asset – decreasing the loan to value or conversely, increasing the debt one can utilize to pull equity out of the asset tax-deferred.
Our focus is on the multifamily apartment rental asset side of the real estate investing business. Unlike other commercial properties like restaurants and retail, apartments have many units per property and generally have shorter, 1-year tenant rental agreements. Short rental terms allow for the property to adjust rents according to the market’s demand. In addition, apartment rentals are always in demand, particularly in our low-vacancy Inland Empire communities.
There are some aspects of inflation that we just can’t avoid, from higher prices on consumer goods to an increase in interest rates. The good news, however, is that even if the predictions become reality, real estate is one solid method to shield yourself from some of the inflation’s effects, and smart investors can even profit from it!
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The information provided here is not investment, tax, or financial advice. You should consult with a professional for advice concerning your specific situation.
