Why You Should Be Holding Real Estate Right Now
For the past year, real estate has been hotter than ever. The pandemic has resulted in both a low inventory and a pent-up demand for homes, making the market increasingly competitive. In fact, real estate has built up so much momentum that analysts believe the market will only slow down in late 2022. All this comes amid the steepest inflation the country has experienced in the past 30 years — another offshoot of the pandemic spurred by global supply chain disruptions and material shortages. As a result, house prices have skyrocketed significantly.
Yet experts say these circumstances are a budding opportunity for investors to ward off inflation. Indeed, though it seems counterintuitive, real estate investments can help you build the defense you need. Here’s how.
Property values increase
Unlike other investment vehicles, real estate is tangible and won’t depreciate over time. Instead, you may notice the opposite: rising prices will cause the equity of your property to increase. For example, the housing market in San Francisco actually appreciated during the 2008 recession as demand was supplied by the military, government, and companies from the tech industry. That’s because these so-called “strong employment” sectors weren’t heavily affected by the economic downturn. You may see an echo of this in the current market as work-from-home schemes and continuing migrations from urban to suburban centers keep demands for real estate high.
Higher prices mean higher rent
If you own rental properties, this rise in property values means you can also increase the amount you charge tenants. Not only will this protect you from the depreciated value of the dollar, but also provide you with steady and maybe even additional income. This is especially true for organizations that hold real estate investment trusts (REIT) today, as leased space is becoming scarce due to rising construction costs.
Mortgage debt depreciates
Armed with this additional income, you’ll be able to pay off any mortgages you’ve accrued during your initial property investments. That’s not all, though: inflation also causes the value of your fixed-mortgage payments to decline, even as property equity rises. You thus get a natural discount on your mortgage, making it doubly easier to pay off any debt you may have. If you’ve previously financed a property with a hard money BRRRR (buy, rehab, rent, refinance, repeat) loan, we’ve discussed that you can even cash out a portion of your equity. And if you’re selling properties, declining mortgage rates in states like Texas are working to boost demand.
More investment opportunities arise
With the leeway given you by extra profit and reduced debt, you’ll have more opportunities to acquire new properties. However, doing so amid inflation is best done with the help of skilled experts in the field. These professionals are trained under robust programs in finance that blend finance theory with broader market knowledge like macroeconomics and statistics. They’re also equipped with knowledge on how to leverage Big Data to analyze market trends. Consequently, they can tell you which properties to invest in right now will be the most optimal in the long run. Certified portfolio managers can also advise you on the optimal investments to make based on your risk tolerance and investment goals.
For decades, real estate investments have been a tried-and-tested method of hedging against inflation. So if you’re worried about your properties, just sit tight — your solid defense won’t be rocked by a downturn anytime soon.
Guest Contributor: Ginny Reign