There’s a lot of talk about inflation lately, even with the pandemic sticking around and the economy making a less than stellar comeback.
Why?
A significant reason is all the financial aid the government is sending out to businesses and citizens. With $3 trillion in the first stimulus package and another $1.9 million in the second that just came out, there is a lot of money floating around.
With crazy low interest rates on any type of savings, most people turned to stocks, which caused stock prices to skyrocket. The extra money could also cause consumers to overspend, which could spur a much faster and greater economic recovery. The only way to respond would be for businesses to increase prices which sparks inflation.
If we have inflation, stock prices could plummet as they often do during times of high inflation. While the stimulus payments may seem like an excellent idea for those struggling as an economy as a whole, it could be devastating to the economy, especially for investors.
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If the stock market has you worried about plummeting stock prices and visions of lost earnings, consider investing in real estate on the Roofstock Marketplace.
Why Invest In Real Estate?
Some investments are inflation-proof or at least less reactive to inflation, and real estate is one of them. While no one can guarantee returns, real estate often has a steady return rate no matter what’s going on in the economy.
Historically, real estate has held its own during periods of inflation and often sees periods of high appreciation in response to inflation. Adding real estate to your portfolio can offset the risk of any ‘market investments’ like stocks or bonds that are in your portfolio.
Real estate has always been a solid investment, even during times of turmoil. While prices can be volatile at times, overall, they appreciate through the years. If you can buy real estate and hold onto it, you’ll enjoy not only the monthly cash flow from renters but also the appreciation real estate often does.
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How Does Real Estate React During Inflation?
Like any investment, real estate can go up or down, but its trend is increasing prices. Even after times of turmoil, values usually increase, even if it takes a few years as it did after the housing crisis.
While no two properties react the same or no two areas have the same benefits, here are some of the ways real estate reacts during inflation.
Higher Property Values
It may seem like real estate and inflation shouldn’t be related, but it makes sense when you look at the big picture. Builders need materials to build houses, and if the price of materials increases, home prices naturally rise.
As the price of new properties increases, the value of existing homes will increase too. With higher construction prices, new construction homes become less affordable and/or available, making existing homes a valuable investment.
Mortgage Interest Rates Will Increase
Most lenders increase interest rates when inflation rises. Since the dollar is worth less, lenders need to raise rates to keep up with the pace of inflation. Higher interest rates often make it harder for borrowers to get a loan or at least borrow as much as they would. This affects buyers, but sellers too.
If buyers can’t get a mortgage, sellers can’t sell their property. As an investor, it pays to jump on the chance to invest in real estate before inflation increases. This way, you have your investment properties and can capitalize on your real estate investments during a time when others can’t buy real estate.
Rent Prices Increase
Rising rent prices are where the money is at as an investor. With higher interest rates, many people turn to renting rather than buying. If you own rental real estate, you’re in a good position. You have the home that people want, and when there’s a high demand for something, prices increase. In this case, rent prices increase, which means more money in your pocket.
With higher rent prices, you have higher profits. You can use the money to reinvest in the home, increasing its value, buy more real estate investment properties, or invest the money elsewhere.
Real Estate Appreciates Faster Than Inflation
Real estate is one investment that often hedges against inflation. On average, real estate appreciates 1% faster than inflation, which means you’re always one step ahead of inflation, allowing you to earn money rather than lose when inflation hits.
If investing in real estate sounds like a good way to hedge against inflation for you, consider investing in Roofstock Marketplace before inflation hits.
What Is Roofstock Marketplace?
Roofstock Marketplace is a marketplace for buyers and sellers of investment properties. It’s a place for them to meet (online) and conduct real estate transactions.
Roofstock specializes in investment homes. Sellers list homes both with and without current tenants. If you find a home you want to buy that has tenants, you start earning cash on day one once you close on the sale.
How Does Roofstock Work?
The process is simple and much more affordable than using a real estate agent and buying a home the ‘traditional way.’
Search
Search the Roofstock Marketplace listings. It’s free to look, and you can filter your search by list price, neighborhood rating, occupancy, age, lease terms, and more. If you don’t find a property that meets your current needs, sign up for alerts for your set parameters.
Evaluate the Properties
Roofstock provides all the details you need to analyze a property. You’ll find pictures, 3-D tours, inspections, title analysis, lease analysis, tenant analysis, neighborhood ratings, and even suggestions for property management companies in the area.
Since you conduct most (or all) of the process online, you can look at properties all over the United States – you aren’t restricted to the homes in your area, so you have a larger window of opportunity.
Place Your Bid
Once you find the right property, place an offer on it. There’s no fee to do this. The seller can accept your offer, negotiate, or decline it. Once you and the seller reach an agreement, Roofstock charges you 0.5% or $500, whichever is greater, to process the transaction.
On a side note, Roofstock charges sellers 2.5% of the sales price. That’s a total of 3% to buy/sell a home. When you use a traditional real estate agent, the standard commission is 6%. While buyers don’t pay the real estate agent’s commission, it’s included in the price, which means buyers pay higher prices and investors have lower return rates.
With Roofstock Marketplace, you increase your returns and buy properties at a lower cost and with fewer fees.
Close on the Sale
Roofstock specialists walk you through the process, ensuring you get to the closing and become a new real estate investor.
What About Managing the Property?
What happens if you buy an investment property halfway across the country? Do you have to visit it to buy it? Who will manage it?
These are the worries that go through investors’ minds, but Roofstock makes it simple. First, you don’t have to visit the property in person if you don’t want to. Most people don’t – they rely on the information provided on Roofstock to make their decision.
If you buy a property that’s not in your area, Roofstock helps you find a property management company to manage the property. This means you have a passive investment with no legwork required by you. All you do is collect the rent and reap the profits of owning the home after paying the mortgage, taxes, insurance, home upkeep, and the property management company.
Who Can Use Roofstock Marketplace?
There aren’t any requirements regarding who can use Roofstock Marketplace. Unlike other investments, you don’t have to be an accredited investor, have a certain amount of money, or understand how the market works.
If you have money to buy a house and/or qualify for mortgage financing, you can use Roofstock Marketplace.
How do you know if you’re qualified for a mortgage? Roofstock specialists can help you get pre-approved for a mortgage so you know how much you can afford and can bid on homes within your price range.
The Benefits Of Investing In Real Estate To Hedge Inflation
It all seems like a lot of work with a lot of decision-making, but there are many benefits of investing in real estate to hedge inflation. It’s not as hard as it sounds to buy investment properties and real estate investments have many advantages:
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You build equity – If you invest in real estate and values increase suddenly due to inflation, you come out ahead. The faster a home appreciates, the more equity you’ll earn in the home. Equity is the difference between the home’s value and what you owe on the mortgage. The difference is your profit, which you can tap into if you need the cash or leave it to accumulate in the home.
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You’ll have regular cash flow – When you invest in Roofstock Marketplace homes, they may come with a lease in place already. This means the home has tenants, and you’ll earn cash from day one. The monthly rent is your cash flow, something you wouldn’t get with stock, ETF, or mutual fund investments unless you invested in dividend stocks, but their payouts aren’t regular.
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You diversify your portfolio – Even if you have stock, bond, or mutual fund investments, you should diversify. If inflation takes over the economy, the value of the dollar drops, and most stock investments tank. Even if you invest in various stocks, when the whole market tanks, you lose money. Investing in real estate is a great way to diversify this risk.
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Homeownership has tax advantages – As a real estate investor, you may be able to write off certain expenses, including the interest you pay on your mortgage. The tax breaks lower your tax liability and increase your profits.
Should You Worry About Inflation?
Inflation is a real risk for anyone, investor or not. When the dollar value decreases and your income doesn’t increase accordingly, it becomes harder to afford the daily cost of living.
Investing in assets that hedge against inflation is the best way to protect yourself. While you can still invest in stocks and bonds, diversifying your portfolio with investment real estate hedges against inflation and ensures that you’ll have monthly cash flow, which most standard investments don’t provide.
Read more about Roofstock: Roofstock Review
Photo by Tierra Mallorca on Unsplash
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