How Does High Inflation Effect Real Estate?

Inflation has been all over the news lately, and for good reason.  Here are some recent headlines, as of this writing:

“U.S. Inflation Rate Accelerates to a 40-Year High of 7.5%” – The Wall Street Journal

“Inflation Rate Hits Highest Level Since 1982 as CPI Spiked 7%” – USA Today

“Inflation Is Suddenly on Everyone’s Mind. How Bad Will It Be?” – Bloomberg BusinessWeek

So what is inflation, exactly? Inflation is a decrease in the purchasing power of money, reflected in a general increase in the prices of goods and services in an economy. We all have plenty of real-world examples of what inflation looks like in our own worlds:

  • $40 used to fill up your tank of gas, now it costs $50 to fill up that same tank.
  • Last year your home’s electric bill was $100 a month, now this year it’s $125 a month even though usage stayed constant.

As of this writing, inflation is tracking to at least 7% and many experts are saying it’s truly much higher. The graph below from the St. Louis Fed shows the trend over the last 15 years.

Inflation not only effects filling our gas tanks, it can also have the same negative affect on certain investments, making them less valuable in the long run.  Many types of stocks can lose value, and so can many types of bonds.  Paper assets overall lose value.

Holding cash is one of the most negative things you can do during an inflationary period like we are seeing today.  Why?  Because the purchasing power of that cash is decreasing by the day.

Although inflation “happens”, you don’t have to sit on the sidelines and accept it.  You can turn the tables and make investments into asset classes that keep up with inflation. 

Those asset classes that do very well during inflationary periods are ‘physical’ assets, with the prime example being real estate.  Why?  Because real estate has intrinsic value.

Multifamily real estate is one of those investments.  During inflationary periods, rents tend to rise in multifamily housing and cancel out inflation’s negative effects.  One of the headlines above reads: “U.S. Inflation Rate Accelerates to a 40-Year High of 7.5%”.  Well, did you know that rental rates in Jacksonville, FL rose 18% during that same period?

People will always need a place to live, so there will always be demand for housing.

An investment in multifamily not only gives you strong returns, but it keeps up with inflation and also comes with huge tax benefits.  Amazing, isn’t it?

Multifamily real estate isn’t flashy, but it does deliver strong returns during times of elevated inflation.  And it doesn’t look like inflation will be decreasing any time soon.

So glad you’re on this journey to invest in your education.