Hedging Inflation With Real Estate
While rising inflation and increased U.S. interest rates can cause stress for many, investing in real estate can be the best approach to hedging inflation. With inflation at a nearly 40-year high and the uncertainty in the stock market, investing in real estate is decidedly one of the best approaches to hedge inflation due to the market’s lack of correlation to the volatility of stocks, bonds, and the consistent returns the investment provides.
What does it mean to hedge against inflation?
Hedging is essential to foreign national and U.S. expat investors looking to have a diversified portfolio as it provides some form of protection against losses due to the volatility of markets and inflation. An inflation hedge is an investment that attempts to offset a currency’s value or purchasing power loss. This typically means investing in a ‘real’ asset, like real estate, with a ‘real’ return, which would be your rental yield.
Real estate has an intrinsic value that can provide monthly returns, which is essential in periods of rising inflation. Therefore, as an investor, putting your money into property investment can keep you ahead of inflation and minimize losses.
Investing in real estate is your best option.
Real estate is an excellent hedge against inflation as there is intrinsic value in the property, rental yields provide consistent cash dividends, and it is less affected by the economic climate and inflation. As inflation rises, there will always be a high demand for homes, which means rental prices and yield would also increase.
The increase in demand for rental properties and low vacancy rates allow investors to increase their rent and stay ahead of inflation. Investors looking to purchase rental properties can capitalize on the increase in demand for rent and the increase in rental prices as you have pricing power, therefore maximizing your rental yield and returns.
Rents and property values are typically correlated with rising consumer prices, so in a period of high demand and limited supply that we currently are experiencing, real estate has shown to be a wise and profitable investment.
What about increasing mortgage and interest rates?
The rise in interest rates has shown to be beneficial to rental property owners as fewer people are looking to purchase homes and would rather rent, causing the rental demand to skyrocket, leaving real estate investors in the perfect position.
Additionally, even though mortgage rates have gone up recently, they are still historically low; this means if you are a non-resident or U.S. expat investor, now is the time to capitalize on the opportunity and invest in real estate.
With the low supply of properties and the threat of increasing mortgage rates, now is the perfect time to jump on the opportunity and purchase investment properties to add to your portfolio as the rising interest rates make it more expensive to borrow money and push people to rent rather than take out a mortgage and purchase their own property.
If you have been toying with investing in real estate, the current economic climate shows that now is the perfect time to do so. As a company, America Mortgages’ only focus is providing U.S. mortgage financing for foreign nationals and U.S. expats. 100% of our clients live and work abroad, making us the leading expert in this space. Now is the time to make hay while the sun shines.
If you’re considering purchasing or cashing out of U.S. real estate, we’d love to hear from you. [email protected].