Using Real Estate to Your Advantage During Inflation

“When everything seems to be going against you, remember that the airplane takes off against the wind, not with it.”

– Henry Ford

Deciding where to invest your money is always a bit of a guessing game. But historically, real estate has often been cited as a reliable choice, depending on your approach.

Over the past century, the U.S. economy has experienced 19 different recessionary periods. Most recently, the COVID-19 pandemic caused price increases in everything from a gallon of gas to a bar of soap. In this type of market, the focus has shifted to finding investments that can preserve capital. Luckily, there are many ways to use real estate to protect your assets and possibly even increase your net worth.

1. Buy Your Dream House

In 2020, the real estate market surprised many by experiencing a giant boom. Housing prices climbed while mortgage rates reached a record low. Many Americans decided it was a good time to move out of their existing residences, or even purchase their first homes. Today, that house-hunting bonanza may have slowed down, but desirable properties can still be found.

Real estate has been called “a remarkably effective tool to hedge against inflation.” If you use a mortgage to purchase a property, you can take advantage of today’s low interest rates. And if you can hold that property for the long term, you may be able to reap the benefits by selling at a higher price in the future.

2. Become a Landlord

Although landlords take on a lot of responsibility, they also have the potential to reap the greatest assets. The key is to find properties that have the highest intrinsic value. This could mean a property with a fragmented ownership base, or a building that simply needs fixing up. This type of real estate investment is attractive because it can also generate income for the owner.

Landlords and other commercial investors have the desirable position of using tenants’ rent to pay off their own mortgages. As the value of the dollar declines, having others pay off your mortgage is a wealth-building exercise. In addition, property owners are able to deduct maintenance, capital expenses, and depreciation from their tax returns.

3. Flip It

Another way to use real estate as an investment is to flip a house. However, to be successful, this method requires a bit of research, analysis, as well as some skill.

Any type of property can be flipped, including residential homes, warehouses, mobile home parks, or self-storage facilities. You could either improve the property yourself or hire others to do the work. In some cases, it could help to partner with a professional, such as an experienced realtor, contractor, or designer to offer advice.

As with the other approaches above, flipping houses does come with some risk. It is possible to lose money if you don’t consider all the costs associated with improving a property before reselling. The owner also may pay capital gains tax on the sale. Nevertheless, purchasing hard assets such as real estate can be an attractive strategy during inflationary times. Hogan agent Kevan Campbell has experience helping clients flip homes and can offer his help.

4. Play the Market

There is another way to profit from real estate without actually buying a property yourself — by investing through the stock market. Diversify your portfolio with real estate investment trusts (REITs) or mutual funds that invest in real estate operating companies. In contrast to other major asset classes, real estate investments sometimes go up when stocks go down. Use this knowledge to your advantage.

Real estate has long been considered a solid investment, even during a volatile market like the one we are experiencing today. And, it may help to remember: no matter what happens, people will always need a place to sleep.