Why Inflation is good for Real Estate investors.
Updated: Aug 17
Property values will increase
As you would expect, real estate prices will also increase when a high inflation rate hits the economy. The reasons for this are quite obvious and simple. Since the prices of construction materials will be high, developers will spend more when building new properties. This will lead to an inevitable increase in the price of new real estate properties. Moreover, existing properties will also rise in value due to the reduced supply of new constructions.
Rental rates will soar
The increase in rental rates is one of the most noticeable effects of inflation. Due to the high cost that comes with mortgages, most people will opt to rent rather than buy. The high demand for rental properties and the influx of tenants will prompt landlords to raise their rental rates. Needless to say, owning a rental property in this economic climate places you in an ideal position as tenants are more willing to pay higher rents than take on an unmanageable mortgage.
Rental properties generate high returns
Rental properties are without a doubt the most profitable assets during inflation, real estate investors will be able to capitalize on the trend by charging more for rent. The high rental income coupled with the low vacancy rates will help generate a very high return on investment for landlords. More importantly, investors who have a fixed-rate mortgage can put this high income toward servicing their debt in a quick and efficient manner.
Appreciation offsets inflation
Real estate appreciation is a highly effective hedge against rising prices. In fact, the appreciation rate of US real estate has been consistently higher than inflation for over a decade now. While this approach might not be capable of yielding high returns when prices spike, it will definitely protect your investment and net worth from the devaluing effects of inflation.
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