Is Real Estate a Hedge Against Inflation?

               Is Real Estate a Hedge Against Inflation?

Since COVID-19, life has barely been normal. As we are heading back to normal, the future is becoming unpredictable and uncertain because of the growing rate of inflation.

Even in these times of growing inflation, the real estate industry has proven to be the only stable industry. This stability of the industry has given rise to the notion that real estate can prove to be a hedge against inflation.

Is real estate a hedge against inflation? Let’s have a look at that.

Real estate can prove to be a hedge against inflation for a number of reasons. Firstly, real estate properties’ value increase over time, and the curve of the graph is likely to go upwards. So whatever the situation, you are likely to stay in profit by investing in real estate.

As the property’s value goes up its rent rates are also likely to go up. Hence, the real estate investors who earn from rental income can benefit even in times of inflation. You can benefit this way by increasing the rates of rent while keeping your mortgage the same.

Inflation also has a significant impact on debt ratios as it lowers the loan value of any mortgage. This might result in an increase in the equity of the property but the fixed mortgage amount remains the same. This is because (globally and not specifically nationally), on a fixed-rate mortgage, you have to pay according to the rate of the dollar. When because of inflation, the worth of the dollar drops, this results in a decline in your debt amount.

Investing in Income-Producing Properties:

Rental yield can help you not only survive inflation but even to surpass it. A study shows that in inflationary times the rental yield has gone up by 30%. The rental income through real estate investments is likely to oust your expenses thus leading you to profit.

Investing in Multifamily Homes:

Investing in multifamily homes such as apartment complexes increases your units’ rental yield. Due to this, instead of depending on any single unit, you generate rental income from multiple sources which makes real estate an excellent hedge against inflation.