As inflation rates climb and the cost of living skyrockets, investors are on the lookout for ways to preserve their wealth. While cash and bonds lose value over time in inflationary environments, real estate consistently proves to be a strong hedge against inflation. But how does real estate protect against inflation, and why should investors consider it a safe haven during economic uncertainty?
In this blog post, we’ll explore the unique characteristics of real estate that allow it to perform well during inflationary periods, and we’ll explain how you can start building a resilient portfolio by investing in property.
Additional reading: The Tiny Home Movement
Inflation occurs when the prices of goods and services rise, eroding the purchasing power of money. In simple terms, inflation means that the money you have today will buy less tomorrow. This can negatively impact investments like cash, bonds, and fixed-income assets because their returns might not keep pace with rising prices.
While many investments suffer during inflationary times, real estate often performs well. Let’s look at why.
One of the reasons real estate is a powerful hedge against inflation is because it’s a tangible, physical asset. Unlike stocks or bonds, which are paper assets, real estate has intrinsic value because it fulfills a basic human need: shelter. As the prices of goods and services rise, so does the value of land and property.
This tangible quality of real estate provides stability because people will always need homes and businesses will always need commercial spaces, no matter the state of the economy. When inflation hits, real estate prices generally increase, helping property owners maintain and even grow their wealth.
Historically, real estate values have appreciated over time. During periods of inflation, this appreciation tends to accelerate because the cost of land, building materials, and labor rises. As these costs increase, so does the value of existing properties, creating an upward pressure on real estate prices.
In addition, inflation can drive more people to invest in real estate as a safe haven, further pushing up property prices. For investors who already own property, this appreciation translates to capital gains, allowing them to sell properties at a higher price later on or borrow against their increased equity.
In addition to property value appreciation, rental income also tends to rise with inflation. As the cost of living increases, so do rents. Landlords can pass on some of these inflationary pressures to tenants by raising rental rates. This means that property owners often experience higher cash flow during inflationary periods.
Rental increases are particularly effective in short-term or medium-term rental markets, where lease agreements are more flexible. For example, landlords with properties in high-demand areas can adjust rental prices annually or even quarterly to keep pace with inflation, ensuring they don’t lose purchasing power.
One of the best advantages for real estate investors during inflationary periods is holding a fixed-rate mortgage. When you buy a property with a fixed-rate mortgage, your interest rate remains the same for the duration of the loan, meaning your monthly mortgage payments stay constant.
As inflation causes rental income and property values to rise, your fixed mortgage payments remain stable, effectively reducing the real cost of your loan. This situation increases the property’s profitability and allows investors to build equity faster as inflation eats away at the loan’s real value.
Another reason real estate can thrive during inflation is the supply-demand imbalance. Housing shortages are common in many regions, and inflation tends to exacerbate this issue. As construction costs rise due to inflation, fewer new homes are built, worsening the existing shortage. This limited supply pushes up property values and rental prices.
For investors, this supply-demand imbalance means that existing properties become even more valuable, both in terms of their market price and the rental income they generate.
Real estate is not only a great hedge against inflation but also an essential component of a diversified investment portfolio. While other asset classes like stocks or bonds might be more volatile during economic downturns, real estate provides stability and consistent returns.
Because property prices tend to increase steadily, real estate investments offer long-term capital preservation. Whether you’re looking to build wealth through appreciation or generate steady cash flow through rental income, real estate is an investment that can withstand economic storms.
If you’re concerned about inflation and want to safeguard your wealth, real estate is an excellent option. With fractional real estate investing platforms like mogul, you don’t need to have large sums of money to get started. With a minimum investment of just $250, you can begin building a diverse real estate portfolio that will help protect your assets from inflationary pressures.
At mogul, we offer a wide range of properties across the United States, including medium-term rentals, commercial properties, and affordable housing models like PadSplit. Each investment opportunity is carefully vetted, ensuring that you have access to high-quality properties with strong growth potential.
With mogul, you can invest in real estate with as little as $250. Start building a portfolio that protects your wealth and generates steady returns, even during inflationary periods.
Disclaimer
This article is intended for informational purposes only and should not be considered financial, legal, or tax advice. Real estate investing involves risks, including the potential loss of principal. Market conditions and interest rates are subject to change and can affect investment performance. Consult with a qualified financial advisor before making any investment decisions to determine what may be appropriate for your individual circumstances.