How Savvy Investors Can Navigate Today’s Inflation Period


While there is no doubt that rising inflation will have an impact on the real estate industry, real estate investors can still make solid investments by changing their investment strategies.

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Over the past two months, we’ve seen a noticeable increase in the Consumer Price Index (CPI) and the Producer Price Index (PPI), which measure changes in the prices of certain goods and services. . With the rise of consumer goods and services, we are starting to see increased inflation concerns among real estate investors.

While there is no doubt that rising inflation will have an impact on the real estate industry, real estate investors can still make solid investments by changing their investment strategies.

Looking back

In the 1970s, inflation was rampant, and it was not brought under control by the government. By the end of the decade, inflation had risen by almost 15% and did not fall until the mid-1980s. Once prices started to rise, higher rates of inflation turned out to be true. very difficult to reduce and have persisted long enough to have an impact on investment trends.

Fortunately, in hindsight, we can suggest steps real estate investors can take to lessen the impact of higher inflation on their investments. Many techniques that worked in the 1970s are still applicable today, if we enter a period of prolonged inflation.

Turn your investments into assets whose income and value can keep pace with rising prices

It is important to know which areas of real estate continue to thrive when we experience prolonged periods of higher inflation. Typically, residential properties located in strong economic zones that experience a growth spurt are safer values ​​when inflation is on the rise. Unlike commercial properties which typically have limits on annual rent increases built into their leases, residential property rents can be more easily adjusted to offset rising prices.

Stay one step ahead

As mentioned earlier, in the 1970s government efforts had a limited impact on lowering inflation rates. Savvy investors who correctly anticipated that we were entering a period of sustained price increases tended to take on fixed rate debt and enter into contracts and purchases with fixed price terms.

Use fixed rate loans to partially finance real estate purchases

A fixed rate loan is a great tool in times of rising inflation. This will allow investors to repay their loans with cheaper dollars. At present, the Federal Reserve has made it clear that it intends to keep interest rates near their current levels for next year or even 18 months, allowing the use of debt to help to increase yields. If higher inflation rates persist, expect a return in variable rate mortgages and other financing instruments and contracts that adjust conditions to keep pace with rising prices.

Transfer money to near-liquid inflation-protected alternatives

As inflation creates a bit of uncertainty, investors typically allocate a larger portion of their net worth to more liquid assets, like cash or near-liquid alternatives. As the value of cash will lose value, investors might consider near-liquid assets like inflation-protected treasury securities or transfer cash into publicly traded stocks or ETFs that invest in tangible assets like as precious metals which tend to follow inflation and which also provide liquidity. in case you need the cash quickly.

A growing number of money managers support allocating a limited amount of money in cryptocurrencies, which can hold and even increase in value, but overall are much more unpredictable.

Lessons learned

History has told us time and time again that politicians almost always prefer to depreciate the value of money rather than introduce new or higher taxes when faced with the need to pay down debt. With this in mind, real estate investors should revisit their investment strategies if they conclude that the price increase will persist. While the value of our money may decline, with the right strategies, assets and cash can be relatively protected. As with many investment strategies, timing is everything, and it all comes down to making the right decisions before it’s too late.

Paul Getty is the CEO of First Guardian Group.

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