The current economic landscape might seem uneasy to most, but for real estate investors it should provide a safe harbor and a hedge against inflation. Historically, during times of high inflation real estate provides advantages over other investment classes. Home values have risen faster than the rate of inflation and rents increase as well benefiting investors that have fixed rate mortgages. Our current inflationary conditions are anticipated to last for the foreseeable future – meaning investing in rental property, whether to expand your existing portfolio or purchase your very first income-producing property is encouraged.
The team at 17th Street Capital, drawing on their years of experience assisting real estate investors reach their investing goals, has provided an overview as to why investing in real estate versus other asset classes should be considered.
Why Real Estate is the Answer to Inflation
When inflation rises there is a corresponding rise in demand for single family residential (SFR) rentals properties. As rents increase proportionately with inflation levels, the potential returns for investors becomes more favorable. With experts predicting an increase in mortgage rates over the course of the next year, the demand for rental properties is anticipated to rise as more potential homebuyers are priced out of the market. This demand, combined with increased monthly rents, makes investing in the SFR market a great option for optimal cash flow during these uncertain times.
Home values also trend upwards during periods of inflation. This translates into asset appreciation for property owners. With housing inventory levels being severely depleted across the nation, longtime homeowners have experienced the most significant uptick in valuation in decades. Although the upward trajectory in housing prices is expected to level off in the coming months, there are still several markets in which an additional 6-9 percent increase is likely. From an investment perspective, this means there is still time to acquire properties and take advantage of the anticipated appreciation.
The most recent 7.5% annual rate of inflation that was realized in January 2022 is the highest we have seen since the 1970’s. We can use a snapshot from that period of time to predict the next 12 months. We should all expect rents and home values to rise at faster rates than normal. Mortgage rates are predicted to rise over the next 12 months as well as the Federal Reserve raises the cost of borrowing money. It is important to procure fixed rate mortgages now for your investments to protect your returns against rising interest rates. This will also allow you to benefit from rising rents.
There are a number of contributors to the cause of inflation, which is affecting every segment of our economy. History tells us that real estate is a beneficiary of inflationary times and is a good place to invest. To protect against rising interest rates procure a fixed rate loan now. Rents should rise which will improve the returns for investors even though they are praying for peak pricing at this time. Now, more than ever, it is essential for real estate investors to do their homework when selecting potential assets to accurately predict long-term cash-flow potential.
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Ready to optimize your investment portfolio and hedge against inflation? Having a trusted lending partner you can rely on for efficient and flexible access to the capital you need makes all the difference. 17th Street Capital is a Southern California-based private lender offering a diverse range of funding options for real estate investors around the country. Contact us today to learn more about how our client-focused approach can help you reach your investment goals.