Why Investing in Real Estate is a Good Idea During Inflation
By Amber Woods
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The spike in real estate prices has been staggering this year. Reuters outlines the effect inflation has had on housing, stating that it has risen by over one-third since 2020. Meanwhile, mortgage rates have almost doubled. With consumer inflation at a four-decade high, raising the price of properties, you may wonder whether this is a good time to invest in real estate. Here are some reasons why doing so may benefit you.
Real estate is a hedge against inflation
Real estate has historically been a stable investment during periods of inflation and is considered a hedge. One reason for this is that land assets never depreciate since they’re considered to have an infinite useful life. There is a consistent demand for housing and real estate, and there always will be.
Yahoo Finance also explains that fixed-rate mortgages stay the same even when prices rise. So your equity as an investor increases even without paying more for your mortgage.
You can increase the value of your property
Once you invest in a property, you can fix it up and increase its value even further. One way to do this is by investing in a sustainable energy source, with the most frequently used method being the installation of solar panels. Hoymiles explains that going solar can increase your property’s value. This is because in a competitive property market, homes with solar sell for more than those without, as a ready-to-use solar installation is seen as a valuable asset. Reducing environmental impact makes it a compelling feature if you ever plan to sell your investment. You can also offset the cost of these installations since some governments and public authorities offer tax credits or one-off payments and rebates to incentive clean energy.
Focusing on the exteriors of any buildings on your property through landscaping, incorporating brick veneers, or fixing their roofs can also raise your property value. Indoors, you can add new bathrooms or repaint the walls. Even as the price of real estate fluctuates, you can continue to increase the value of your property and sell it in the future for a profit.
You can profit from rental properties
Buying a multifamily or commercial property during inflation could be highly profitable. Our article ‘How to Invest in Real Estate’ highlights that your rental income covers your property’s mortgage, taxes, and insurance. But with the cost of living rising, everything from food to energy is affected, including rent. This can benefit you since you can raise the amount you charge. Doing so can do more than just give you a steady stream of income. If you have a fixed-rate mortgage, you put that money toward your debt.
You can maximize these advantages by choosing areas with low vacancy rates since your rental properties will always have demand. If you renew leases yearly, you can also benefit significantly from inflation since you can raise your rent annually.
The housing market is in a better condition today
Compared to the recession of 2008, the housing market is much better off. A CNBC report found that new lending regulations are mainly responsible for this. Before the housing market crash, adjust-rate mortgages (ARMs) disadvantaged investors by not fully indexing interest rates. This has since been rectified, with most ARMs offering a fixed rate for seven to ten years.
And because real estate prices have risen in the past two years, investors have much more in terms of home equity. Homeowners are also in a better position, as the total mortgage debt in the country is less than 43% of current home values. That’s the lowest on record. Negative equity — when a borrower owes more than their property is worth — is now primarily non-existent. These numbers show that even with rising real estate prices, investors are still being presented with favorable conditions.
Although real estate prices may be higher right now, investing in the market could benefit you. Knowing what to do with your properties in light of inflation can make your real estate investments profitable.
For help in managing your investment property, contact Power Properties in Calgary.
About Power Properties Ltd.
Founded in 1980, Power Properties has been providing hassle-free property management services to property owners, property investors and non-residents with homes in Calgary, Alberta for over 40 years. Our full-service property management includes everything from move in to move out, so you don’t have to worry about the day-to-day operations of your rental property. With a team of licensed professionals, years of experience, and award-winning service, you can rest assured that your property is in good hands.
