5 Reasons Why Income-Producing Real Estate is the Ideal Hedge Against Inflation
The real estate industry brings together individuals from all walks of life who are given the opportunity to own a piece or portfolios of properties based on their due diligence and willingness to invest. The industry’s value has proven to stand the test of time – acting as a fortress for investors during times of inflation.
Inflation is defined as a decline in purchasing power reflected in the increase of an average price level of a basket of selected goods and services in an economy over some period of time. The rise in the general level of prices, often expressed as a percentage, means that a unit of currency effectively buys less than it did in prior periods. This goes on to cause further strain on individuals making it an uphill task to afford their basic needs.
The Best Hedge Against Inflation
The large-scale printing of fiat currency started in 2020 as the Fed attempted to prop up an American economy seriously slowed by the COVID-19 pandemic. This unprecedented government easing, along with other macroeconomic forces has caused an inflation increase we haven’t seen in 40 years. There has never been a more important time to explore and understand how to successfully navigate these rough waters.
Here are 5 Reasons Why Real Estate is a Hedge Against Inflation:
1. Increased Profit:
The generally short-term cyclical nature of real estate leasing allows owners to raise rents according to inflation. By gradually increasing rents, landlords prevent the pain of losing capital due to inflation.
2. Sustained Value:
Inflation paired with a shrinking economy generally leads to the depreciation of most assets, but it is a different outcome with real estate. Unlike equities and currencies, income-producing real estate generally increases over time.
3. Availability of Funds:
During inflationary periods, apartment owners and investors have an advantage over other asset owners because they can tap into equity for liquidity without giving up ownership of said asset.
4. Little to No Capital Loss:
Real estate investors can yield profit without losing their original value, unlike other assets, which lose their value during inflationary periods.
5. Solid Risk–to–Reward Ratios:
Being a physical tangible asset with consistent cash-flow attached to it, income-producing real estate has proven time and time again that it is one of the financial world’s most resilient sectors. When evaluating risk vs. reward, there is no alternative to the consistency that real estate ownership provides.
In conclusion, as the world tries to chart a course through this period of inflation, it’s important to note that historically, all successful paths have led to income-producing real estate; ensuring security and a steady supply of cash flow.