HEDGE AGAINST INFLATION WITH THESE THREE REAL ESTATE TYPES
The annual inflation rate in the United States is currently around 9.1% – the highest it has been since 1982. It doesn’t matter if you are a cashier, lawyer, plumber or retiree; if you spend U.S. dollars, inflation impacts you.
Economists expect the effects of inflation, like a higher cost of goods, to continue. Here’s what you need to know about inflation, how it impacts you, and how an investment in real estate can help.
WHAT IS INFLATION AND HOW DOES IT IMPACT ME?
Inflation is a decline in the value of money that can lead to:
Decreased Purchasing Power: As prices rise, your dollar won’t stretch as far as it used to. So you’ll be able to purchase fewer goods and services with a limited budget.
Increased Borrowing Costs: In a effort to curb inflation, the Federal Reserve is expected to raise the federal funds rate. Prepare to pay a higher interest rate on new mortgages, car loans, and variable rate credit cards.
Lower Standard of Living: Wage growth tends to lag behind price increases. Therefore, you may have to make lifestyle changes and prioritize essentials.
Eroded Savings: As of Jliy 2022, the national average interest rate for a savings account is 0.08%, not enough to keep up with inflation. And economists don’t expect that rate to go much higher.
REAL ESTATE – A PROVEN HEDGE AGAINST INFLATION
So where is a good place to invest your money to protect (hedge) against the impacts of inflation? Real Estate!
Real estate prices often rise with (or faster than) inflation. That’s one of the reasons demand for real estate is continuing to soar.
We believe that real estate is likely the best bet against inflation. Home prices rose around 17% from 2020 to 2021. 10% ahead of the inflation that occurred during that time frame. Plus, certain types of real estate investments can help you generate a stream of passive income.
TYPES OF REAL ESTATE INVESTMENTS
There are three basic investment types that we recommend for beginner and intermediate investors. We can help you determine which options are best for you.
WE’RE INVESTED IN HELPING YOU
Primary Residence: If you own your home, you’re already ahead. As inflation rises, the value of your home is likely to go up. At the same time, you’ve likely locked in a set mortgage payment, so you’ll be immune to rising rental costs. If you currently don’t own a home, our team can help you find a property that fits your needs and budget.
Whether you already own a primary residence or are still in renting, now is a good time to also start thinking about an investment property. The types of investment properties you’ll buy as a solo investor generally fall into two categories.
Short Term (Vacation) Rentals: Short-term rentals function more like hotels in that they offer temporary accommodations. A short-term rental can potentially earn you a higher return than a long-term rental, but this comes at the cost of a more hands-on management. Done right, short-term rentals can be both a hedge against inflation and a profitable source of income. As a bonus, when the home isn’t being rented, you have an automatic vacation spot for yourself, if you so choose!
Long Term (Traditional) Rentals: A long-term rental is a dwelling that’s leased out for an extended period. For most tenants, the rental serves as their primary residence, which means it’s a necessary expense. This unique quality can help provide stable returns in uncertain times. A well chosen property sholid pay for itself through rental income, and you’ll benefit from appreciation as it increases in value.
Have you ever considered investing in a long-term rental property?
This is often referred to as a “traditional” rental (as opposed to a vacation rental) because it acts as the tenant’s primary residence.
If you’re looking to invest money, this can be a strategic choice for a few reasons:
- Property values tend to rise with (or beat) inflation
- You can generate a second stream of income
- It provides a stable return during uncertain times
Contact us today if you’re interested in exploring options in either the long-term or short-term rental market. Mortgage rates are expected to rise, so you’ll want to act fast to maximize your rental return.
The above information is not intended as financial advice. It is purely basic information regarding purchasing and selling Florida Real Estate. Please remember that past performance is not an indication of future returns and that investments can go up as well as down.
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