Real Estate Investment During Inflation: Do or Don’t?

Real estate investment has always been a hot trend when it comes to earning huge returns. Capitalizing on the economy has a higher ROI than most active and passive investment options. Investors have gotten confused with the recent inflation in the global economy as a response to the COVID-19 recession. Should they invest in real estate during inflation or wait until the economy stabilizes?
If you’ve come looking for the same, you’re at the right place.

What Impact Does Inflation Bring To The Real Estate Industry?
The simple answer is that real estate investment becomes many times more attractive during inflation. More dollars are competing for the same number of goods, which make them priced higher – from a bar of soap, a bag of rice to the price of fuel. As a result, the cost of living, housing, groceries, and transport increases.

If your savings or investments are not growing at the same rate that the cost of goods is increasing, you will go into deep waters. The expense of surviving during inflation will feed on your savings and cause them to dwindle, which creates an overall worst-case scenario if you’re seeking to build a stable future.
According to research, the current inflation rate for the year is around 5%, and the average interest rate on the savings account is 0.6%. That means you have to invest somewhere where the return on your investment is equal to or above 5%.

The best option is real estate, your ultimate hedge against inflation. If you purchase a property and hold it long-term, it is a remarkable tool to earn returns during and after inflation.

Real Estate Investment: A Hedge Against Inflation
Let’s consider a scenario. You purchase a house on the mortgage for $250,000 and rent it out for 30 years until it is completely paid off. Imagine that at the end of the 30-year tenure, you have paid $394,160 at a 3.3% interest rate.

If the government imposes an inflation rate of 2.5%, the worth of your house would be around $524,392. You can sell it off and reap almost a double return on profit, considering that the mortgages were covered by the rent and not paid from your pockets.

Therefore, this is why investors flock to real estate when the economy becomes uncertain. While it is an ever-green investment, the inflation rate does only make it better.

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