Inflation: Is it good or bad for real estate? How do you protect yourself from it? The value of a dollar 20 years ago is different from the value of a dollar today.
To an average person who works a 9-5 or maybe even several jobs, inflation is bad. It chews away at their money! With the classic definition of inflation in mind, money is “worth less” and in turn, buys less.
Domenic Mandato, the President and CEO of Investplus REIT likens inflation to gaining weight. You go on with your days and at the end of a year, you may have gained a pound. After another year, you’ve gained another pound. You’re kind of aware of it until one day you look at an old picture of yourself and ask what the hell happened LOL.
Inflation is kind of the same. Have you noticed the price of food lately? Just thinking about your Dad telling you a loaf of bread cost $0.75 when he was younger.
Currently, every market is on fire—from small towns to even big cities, and inflation is observable across the country. For business owners, every action carried out affects income. As such, you would want to make sure that you run your numbers and that your business is sustainable even in the face of inflation.
The Impact of Inflation on Real Estate Investors
In line with the efforts to ensure that your business is sustainable, it is important to know how to take advantage of the benefits that inflation has on real estate investors. Yes, you read that right: Inflation can be beneficial to real estate investors.
You can hedge against inflation as a real estate investor, and this is especially true when you already own real estate. As building costs go up, it becomes more expensive for new developers to build. You, on the other hand, already have a building which will benefit from the presence of newly-built buildings in the same category around your area.
So as this new building is being constructed and costs more than your building, your real estate gets a little bump up simply because in comparison, your building is similar in space and has the same value to a person needing shelter. The difference is new verse older.
Yes there are other amenities but let’s think about just the essentials of having a place to live for now.
Notice also, I said older, not old. Keeping your older building up to date with the latest paint colors and renovation helps keep rents up.
Speaking of rents, if the new build costs more, their rent has to be more. Depending on the condition and demand for rent in your neighborhood, you can also increase your rent. See how you’re protecting yourself from inflation?
This is also made possible by buying below replacement costs. When your costs are lower, you can be competitive against the newer buildings because you can offer more or less the same amenities which you have purchased at lower costs.
Another (advantageous) impact of inflation on real estate investors is the income. Some people consider real estate investing as the “lazy way” to safeguard investments against inflation.
Think about our market right now. Even if you’re not thinking about selling your home, chances are, if you live in city of 100,000 or more, the value of your home has gone because of the demand for homes similar to yours. What did you do to increase the value of your property? Nothing!
Should You Invest in Real Estate?
There are many options to look into when considering investing in real estate, and it can all get confusing. Fear will then kick in, and this can stop you from making that investment. To make your money grow, however, it is imperative to take that first step.
You can be new to all of this and still make solid investments by joining Investplus REIT.
Spearheaded by Domenic Mandato, Investplus REIT unitholders experience the diversification offered by multiple buildings across western Canada. With years of experience in the real estate field and with multifamily and commercial buildings under his management, Domenic continues to grow Investplus REIT’s unitholders investments.
We hope you enjoyed reading this article “Inflation: Is it good or bad for real estate?” Should you have any questions or if you’d like to speak to one of our consultants you can.