How Does Inflation Affect Multifamily Investments?
For the past year, inflation has seemed to be the number one item on everyone’s mind, with growing costs of goods and services and declining purchasing power of money. Inflation is at an all-time high. Inflation has climbed to 8.6%, smashing records in a negative way, according to the latest CPI report released last week.
Even among investors like myself, inflation is a hot topic of discussion. Is it going to affect your real estate holdings? Will it have a positive or negative effect on your company? Inflation is obviously a major source of concern for everyone.
Real estate investors, in my opinion, should not be concerned about rising inflation. The ones who will benefit from it will be investors. Those who aren’t likely to benefit are those who, regrettably, are at the bottom of the economic ladder: those who don’t have any money in the game, are in debt, or have minimal equity in their principal residence.
Commercial real estate, unlike bonds and cash, which lose purchasing power when prices for goods and services rise, is a relatively safe inflation hedge. It has intrinsic value, is limited in supply, and pays a profit. Multifamily investments are one of the most effective inflation hedges in commercial real estate, since the lease structures are much better positioned to benefit from an increase in inflation than other asset categories.
It’s critical to remember that multifamily real estate is a requirement. The main objective is to give a safe sanctuary. Renting is growing increasingly popular as moving is costly and time-consuming, and there are few possibilities in the home-buying market. Home prices have soared in the previous 18 months as a result of the lowest availability of for-sale property in years, putting additional pressure on pricing and making affordability a problem for many buyers. As home ownership has become more expensive, demand for rental units in multifamily homes has increased.
Let’s schedule a call to discuss how you can hedge inflation too!