How to Use Real Estate to Hedge Against Inflation
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Loading... - Brielle Durand
- 11 Oct 2022
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Inflation can have a negative impact on normal household spending, from gas to groceries and beyond. This is why many people seek opportunities to hedge their wallets and portfolios against rising inflation as it starts to negatively impact the money. Real estate has long been considered one of the best hedges against inflation because you can pay less for your home over time compared to what you may pay in rising rent.
This can help your wallet as you pay more for everyday items. To help you determine if it’s the right time to invest in real estate, consider working with a financial advisor.
How Inflation Can Hurt Your Finances
Inflation is the rise of prices for things purchased within an economy that leads to a decline in purchasing power over time. Inflation is inherently considered a bad thing because it means that a unit of currency effectively buys less than it used to. This can put a strain on individuals and families as they strive to keep up with the same amount of things to buy but effectively with less money to spend.
A steady climb in inflation is considered acceptable as the economy has time to keep up with higher wages or more financial opportunities. Where inflation really hurts your finances is when it rises quickly over the period of a year or less, driving the costs of normal spending up without any extra income in the economy.
An example of this is thinking about what a cup of coffee used to cost in 1990 compared to what it costs today. That is normal inflation. However, costs for many goods, like gasoline, increased quite dramatically throughout 2021 and 2022. This has caused significant struggle in the economy as individuals and families try to keep up by spending the same amount of money on less than before.
Why Real Estate Can Be a Good Hedge Against Inflation
The cost of real estate tends to rise along with inflation, which can price many people out of the market. So the question is, then, why can real estate make for a hedge against inflation? Owning real estate can be a strong hedge because it can increase your value while keeping your housing costs, a major expense for anyone, the same over time. This makes it especially valuable if you own real estate before inflation really takes hold of the economy.
Here are three main benefits of using real estate as a hedge against inflation:
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Increased Property Values: If you own real estate during a dramatic inflation climb then the value of the property you own is likely to increase. You can sell the property and get some extra cash or you can see where the market ends up, likely giving you a permanent increase in value. Read More...
