Transaction Management

Inflation 101: How Real Estate Counters Inflation

This is how you can best explain how inflation impacts real estate.

 

Unless you’ve been living under a rock, you know that everyone is talking about inflation right now. You may nod your head when people mention it, but do you really understand how inflation impacts real estate? Today I’ll be going over some quick talking points you can pass on to your clients.

Contrary to popular belief, you don’t have to have an economics degree to understand what inflation is. Put simply, inflation is a rise in prices. It’s almost comically simple, but how it impacts people’s lives can be a little trickier. An easy example you can mention to your clients is the price of gasoline. It’s something they notice every day, so it’s a great way to introduce them to the topic.

Contrary to popular belief, you don’t have to have an economics degree to understand what inflation is.

So how does inflation specifically affect real estate? It affects real estate in three big ways: Home prices soar, lending costs and interest rates rise, and rent prices increase. With these three factors, owning property is a great way to hedge against the negative effects of inflation, and there are three big reasons why:

1. Real estate is a fixed asset with a fixed monthly payment. Mortgages are not affected by inflation the way rents are. This is probably the single biggest reason why real estate is a great hedge against inflation.

2. Your property’s appreciation will offset some of the effects of inflation. As prices rise with inflation, so too does your property’s dollar value.

3. Landlords benefit from rent increases. If you rent out your property, increasing rent prices indicate an increase in profit that will help offset the effects of inflation.

As you can see, you don’t need to be an economic genius to understand inflation. Hopefully I have given you some great talking points to explain to your clients why property is a great hedge against inflation. If you have any questions about today’s topic or anything else, do not hesitate to reach out to me. I am always willing to help.