Real Estate Inflation….

What is inflation?

Inflation is defined as the average annual increase in the prices of a given group of goods and services in a particular economy. In essence, it's the steady decrease in the dollar's purchasing power. The $400 washing machine you bought last year will probably cost you an extra $7.20 today, assuming an inflation rate of 1.8%. While that might not seem like much, adding up the costs of all your purchases over the course of a year—including groceries, gas, phone bills, etc.—will result in a much higher number and a higher overall cost for goods. It might have an even greater effect if a country experiences inflation that is higher than average. Greece, for instance, experienced close to 5% inflation in the past decade, meaning that same $400 washing machine would cost an additional $20.

_It's crucial to remember that inflation is not the same as appreciation. An increase in a property's value over time is referred to as an appreciation rate in terms of real estate. Value increases based on demand when there is appreciation rather than increasing in relation to the currency. A home could increase in value above the rate of inflation, or it could decrease in value in an inflationary environment.

What impact does it have on real estate?

Probable positives during times of high inflation are rising prices for rental property rates. It can be difficult to obtain a mortgage during periods of high inflation. Because high mortgage rates reduce buyers' purchasing power, many people continue to rent. This increase in demand leads to higher rental rates, which is great for landlords. While appreciation is a distinct market analysis, in general, housing prices rise in an inflationary economy. Real estate has intrinsic value; people require shelter regardless of the value of their currency. If you can offer favorable terms for private mortgages, you'll almost certainly have a line out the door.

 Probable negatives for a real estate investor in inflationary times is the increased cost of borrowing debt. To avoid being shorted, the bank will charge higher interest rates and make fewer loans. Another disadvantage is the increased cost of building materials for new buildings. With the high cost of borrowing and the additional cost of building, new construction can be a difficult investment during an inflationary period. When money is tight, traveling is usually the first thing to let it go. Vacation rentals, tourist destinations, and retirement communities may not work equally as well as other types of real estate investing.

Wise investments for an inflationary economy

Investing in real estate is always highly dependent on the market and location of the property. But speaking generally, the following real estate investments fare better than others in a high inflationary economy:

_Rental property, including residential, commercial, multi-unit, and townhouses will likely have higher than normal demand and returns.

_Real estate investment trusts (REIT) will follow the market demands and appreciation like that of physical real estate and can be a good way to distribute your investment across a large number of assets.

Inflation can affect real estate investing both positively and negatively, depending on the type of investment, the market, and other factors. As with any sound investment, conduct your due diligence and consult with your realtor to identify promising options in your market.